Annual report and accounts 2017
Bovis Homes Group PLC
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Bovis Homes Group PLC, The Manor House,
North Ash Road, New Ash Green, Longfield,
Kent DA3 8HQ.
www.bovishomesgroup.co.uk
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bovishomesgroup.co.uk
bovishomesgroup.co.uk
Annual report and accounts 2017
Supplementary information
Principal offices
Bovis Homes Group PLC
The Manor House
North Ash Road
New Ash Green
Longfield
Kent DA3 8HQ
Tel: (01474) 876200
2
1
3
5
6
7
4
West division
1
Mercia region
2
West Midlands region
3
Western region
4
South West region
Dunston Hall
Dunston
Stafford
ST18 9AB
Bromwich Court
Highway Point
Gorsey Lane
Coleshill
Birmingham B46 1JU
Cleeve Hall
Cheltenham Road
Bishops Cleeve
Cheltenham
Gloucestershire GL52 8GD
Heron Road
Sowton Industrial Estate
Exeter
EX2 7LL
Tel: (01785) 788300
Tel: (01675) 437000
Tel: (01242) 662400
Tel: (01392) 344700
East division
5
Northern Home
Counties region
6
Southern Counties
region
St Annes House
Caldecotte Lake
Business Park
Milton Keynes
Buckinghamshire
MK7 8JU
Central 40
Lime Tree Way
Chineham Park
Basingstoke
Hampshire
RG24 8GU
7
South East region
The Manor House
North Ash Road
New Ash Green
Longfield
Kent
DA3 8HQ
Tel: (01908) 088500
Tel: (0845) 812 7777
Tel: (01474) 876200
Bovis Homes Group PLC | 157
Heyford Park, Upper Heyford
Contents
Strategic report
A review of our business
model, strategy and
summary financial and
operational performance
Business overview
2 2017 highlights
4 Chairman’s statement
6 What we do
7 Reasons to invest
4
Chairman’s statement
Ian Tyler discusses how the
Group is well placed for
8 Housing market overview
the future
Our business and strategy
12 Chief Executive’s report
16 Our business model
18 Strategic priorities
28 Risk management
30 Principal risks and uncertainties
Corporate social responsibility
36 Our CSR priorities
Our financial performance
56 Financial review
58 Directors and officers
60 Corporate governance report
78 Remuneration report
98 Audit Committee report
102 Nomination Committee report
104 Directors’ report
108 Auditors’ report
115 Group income statement
115 Group statement of
comprehensive income
116 Balance sheets -
Group and Company
117 Statement of changes in equity -
Group and Company
118 Statements of cash flows -
Group and Company
119 Notes to the financial statements
147 Five year record
148 2017 AGM Notice
152 Explanatory notes to the
AGM Notice
156 Shareholder information
157 Principal offices
12
Chief Executive’s report
Greg Fitzgerald provides an
overview of the year and
discusses the plans ahead
56
Financial review
Earl Sibley reports on the
financial performance for
the year
Bovis Homes Group PLC | 1
Our governance
Detailed discussion of our
governance framework and
remuneration policy
Financial
statements
Financial statements
and notes
Supplementary
information
Bovis Homes Group PLC highlights
Financial highlights
Revenues
2% Down
Dividends
6% Up
ROCE
19% Down
Revenue (£m)
1,028.2
8
.
4
5
0
,
1
2
.
8
2
0
,
1
5
.
6
4
9
4
.
9
0
8
0
.
6
5
5
17.30
13.84
10.38
6.92
3.46
0.00
Operating profit
margin (%)
(1)
12.5%
0
.
7
1
3
.
7
1
9
.
4
1
2
.
5
1
5
.
2
1
Profit before
tax (£m)
114.0
1
.
0
6
5 1
.
3
3
1
7
.
4
5
1
0
.
4
1
1
8
.
8
7
160.10
128.08
96.06
64.04
32.02
0.00
2013
2014
2015
2016
2017
2013
2014
2015
2016 2017
(1)
2013
2014
2015
2016
2017
(1)
Earnings per share (p)
Dividend (p)
68.0
47.5
.
4
5
9
.
1
0
9
6
.
8
7
0
.
8
6
95.40
76.32
57.24
38.16
19.08
0.00
.
9
4
4
47.5
15
38.0
10
28.5
19.0
5
9.5
0
0.0
.
0
5
3
.
5
3
1
0
.
.
5
0 4
0
4
ROCE (%)
(2)
13.7%
3
.
.
8
2 1
6
1
6
.
0
1
.
0
7
1
7
.
3
1
5
.
7
4
18.30
14.64
10.98
7.32
3.66
0.00
2013
2014
2015
2016 2017
2013 2014
2015
2016 2017
2013
2014
2015
2016 2017
Notes: (1) Pre exceptional operating profit margin and ROCE are calculated prior to exceptional items totalling £6.8m related to advisory fees (£2.8m) and restructuring costs (£4.0m).
(2) For calculation of ROCE, please see table on page 146.
2 | Strategic report | Business overview
Consented land
17,096 plots
Strategic land
20,756 plots
4
1
8
,
9
1
4
0
7
,
8
1
2
6
0
,
8
1
6
9
0
,
7
1
8
3
6
,
4
1
4
9
4
,
5
2
3
8
0
,
3
2
272200
6
5
7
,
0
2
204150
136100
0
5
3
,
1
2
8
0
1
,
0
2
Average sales
price (£)
272,400
0
0
4
,
2
7
2
0
0
9
,
4
5
2
0
0
6
,
1
3
2
0
0
6
,
6
1
2
0
0
1
,
5
9
1
25494.0
19120.5
12747.0
6373.5
0.0
68050
0
2013 2014
2015
2016 2017
2013
2014
2015
2016 2017
2013
2014
2015
2016
2017 (1)
19814.0
14860.5
9907.0
4953.5
0.0
Legal completions
3,645
3934.000000
2622.666667
3 3
1
8
,
2
4
9
3
,
3
7
7
9
,
3
5
3
6
,
5
4
6
,
3
1311.333333
0.000000
HBF customer
satisfaction
(4)
2*
5
4
X
X
0.46
3
3
0.23
NHBC reportable
items
0.38
7
4
.
0
8
3
.
0
4
3
.
8 0
2
.
0
2
7
1
.
0
0.00
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016 2017
Strategic report | Business overview
Operational highlights
Average
selling price
7% Up
(3)HBF customer
satisfaction
trending at
4* Up
Legal
completions
8% Down
2013
2014
2015
2016
2017
2013
2014
2015
2016 2017
(1)
2013
2014
2015
2016
2017
(1)
2013
2014
2015
2016 2017
2013
2014
2015
2016 2017
Consented land
17,096 plots
Strategic land
20,756 plots
19814.0
14860.5
9907.0
4953.5
0.0
4
1
8
,
9
1
4
0
7
,
8
1
2
6
0
,
8
1
6
9
0
,
7
1
8
3
6
,
4
1
25494.0
19120.5
12747.0
6373.5
0.0
4
9
4
,
5
2
3
8
0
,
3
2
272200
6
5
7
,
0
2
204150
136100
0
5
3
,
1
2
8
0
1
,
0
2
Average sales
price (£)
272,400
0
0
4
,
2
7
2
0
0
9
,
4
5
2
0
0
6
,
1
3
2
0
0
6
,
6
1
2
0
0
1
,
5
9
1
68050
0
2013
2014
2015
2016
2017 (1)
Earnings per share (p)
Dividend (p)
68.0
47.5
ROCE (%)
(2)
13.7%
Legal completions
3,645
95.40
76.32
57.24
38.16
19.08
0.00
9
.
4
4
4
.
5
9
1
.
0
9
6
.
8
7
0
.
8
6
5
.
7
4
0
.
5
0 4
.
0
4
0
.
5
3
3
.
8
2 1
.
6
1
0
.
7
1
7
.
3
1
2013 2014
2015
2016 2017
2013 2014
2015
2016 2017
2013
2014
2015
2016 2017
3934.000000
2622.666667
1311.333333
0.000000
4
9
3
,
3
7
7
9
,
3
5
4
6
,
3
,
5
3
6
3 3
1
8
2
,
HBF customer
satisfaction
(4)
2*
5
4
X
X
0.46
3
3
0.23
NHBC reportable
items
0.38
7
4
0
.
8
3
.
0
4
3
8 0
2
.
.
0
2
7
1
0
.
0.00
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016 2017
Notes: (3) Based on responses from 1 October 2017 to date. Star rating awarded according to the proportion responding ‘yes’ to the question ‘would you recommend your builder
to a friend?: 4 star rating 80% - 89.9%.
(4) Based on HBF star rating announced in March of that year relating to the prior period of 1 October to 30 September.
Bovis Homes Group PLC | 3
Revenue (£m)
1,028.2
8
.
4
5
0
,
1
2
.
8
2
0
,
1
5
.
6
4
9
4
.
9
0
8
0
.
6
5
5
Operating profit
Profit before
margin (%)
(1)
12.5%
0
.
7
1
3
.
7
1
9
.
4
1
2
.
5
1
5
.
2
1
tax (£m)
114.0
1
.
0
6
5 1
.
3
3
1
7
.
4
5
1
0
.
4
1
1
17.30
13.84
10.38
6.92
3.46
0.00
47.5
15
38.0
10
28.5
19.0
5
9.5
0.0
0
5
.
3
1
160.10
128.08
96.06
64.04
32.02
0.00
18.30
14.64
10.98
7.32
3.66
0.00
8
.
8
7
6
.
0
1
Chairman’s statement | Ian Tyler
People
People, remain a key priority and we are
continuing to invest more in training and
development than ever before. We have
established the Bovis Homes Training
Centre and developed a range of training
opportunities for all our employees
and subcontractors.
Acknowledging the skills shortage in our
industry, we are pleased to have signed
the HBF’s Home Building Skills Pledge,
committing us to working with others in
the industry to recruit and train
more people to the highest industry-
agreed standards. We also remain
very committed to our Bovis Homes
Apprenticeship Scheme and welcomed
20 new recruits in the year.
In what has been a very challenging
period, the extraordinary passion and
commitment shown by our employees,
which I have witnessed first hand, has
been outstanding. On behalf of the Board,
I would like to thank all of them for their
dedication, hard work and enthusiasm in
delivering quality houses to our customers
and driving operational change. I would
also like to extend my thanks to our
subcontractors and suppliers who are such
an important and valued component of
our business.
The housing market
The fundamentals of the new build
housing market remain positive with strong
demand across all our regions. Interest
rates remain low by historical standards
and the mortgage market continues to
be competitive. Increasing the supply
of new homes in the UK remains a key
priority for Government and their support
for purchasers, in particular through the
Help to Buy Scheme, is enabling them
to access the housing market through
affordable mortgage finance. Whilst the
supply of labour in our market remains
challenging, the planning environment
continues to be positive, supporting a
rational market for housing land.
Ordinary dividends and
capital return plan
The Board intends to continue the strategy
set out in 2017 of maintaining an efficient
balance sheet and delivering sustainable
dividends to shareholders. In setting the
level of dividends the Board considers a
range of factors including the extent to
which the dividend is covered by underlying
earnings and free cash flow, the prevailing
strength of the balance sheet and general
economic circumstances, with particular
regard to the cyclicality of the industry.
The Board is pleased to recommend a final
ordinary dividend of 32.5p (FY16: 30.0p)
per share bringing the total ordinary
dividend for FY17 to 47.5p (FY16: 45.0p)
per share, representing a 6% increase.
Reflecting the Board’s confidence in the
outlook for the business, it intends to
increase the ordinary dividend for FY18 by
a further 20% to 57 pence per share.
In addition, the Board intends that surplus
capital will be returned to shareholders
via special dividends totalling a minimum
of £180m or c.134 pence per share in the
three years to 2020, with the first special
dividend payment of £60m, equivalent to
c.45 pence per share being paid towards
the end of 2018.
The Group expects to continue to be
strongly cash generative over the next
two years and the Board is committed to
reviewing the capacity for further returns
to shareholders over time.
The Board
I would like to thank my Board colleagues
for another year of support and positive
challenge. We are pleased to have been
joined in November by Mike Stansfield
who brings strong housebuilding industry
experience spanning three decades.
Mike is also a member of the Nomination
Committee, the Remuneration Committee
and the Audit Committee. As previously
announced Alastair Lyons will step down
from the Board at our AGM in May.
Alastair has been on the Board since
October 2008 as Deputy Chairman and
Senior Independent Director, and as
Chairman of the Remuneration Committee
since May 2014. My colleagues and I
would like to acknowledge the valuable
contribution Alastair has made to the
Group during this time. Ralph Findlay,
non-executive director, will take the
position of Senior Independent Director
on Alastair’s retirement at the 2018 AGM
and it is proposed that Nigel Keen, non-
executive Director, will take the Chair of
the Remuneration Committee.
I am pleased to report that
the Group starts the new
year in a much stronger
operational position.
2017 commenced with a difficult period
for the business managing a high level of
customer issues. After 18 years’ service
David Ritchie stepped down as Chief
Executive in January and we announced
our intention to slow production during
the year to enable the business to reset.
In early March the Board acknowledged
that it had received written proposals from
Redrow plc and Galliford Try plc outlining
their rationalisation for a potential merger.
Having reviewed each approach in detail
the Board concluded that neither reflected
the underlying value of the business and
both were rejected.
We were delighted to welcome Greg
Fitzgerald as Group Chief Executive in
April 2017. The Group is benefitting from
Greg’s extensive housebuilding experience,
operational focus and hands on approach
to management.
Customers
Returning our customers back to the
centre of everything we do and delivering
a significantly improved level of customer
satisfaction was our number one priority
for 2017. There has been a step change in
our approach to customer experience and
I am very pleased to report that since the
start of the HBF year (1 October 2017),
the Group is trending at a 4 star
HBF Customer Satisfaction score.
Delivering our customers quality new
homes and a high level of customer service
that meets their expectations throughout
their entire journey with Bovis Homes,
remains one of our core strategic priorities.
4 | Strategic report | Business overview
Strategic report | Business overview
Building
on strong
foundations
Delivering improvements
across the business
The future
We have set out our clear medium term targets
to be achieved by 2020 which will return
Bovis Homes Group to being a leading UK
housebuilder and deliver significantly improved
returns to shareholders. I continue to spend a
lot of my time with Bovis Homes in the regional
offices and on site with the leadership team.
The team are driving change through the
business and allowing the positive culture that
evolved during 2017 to flourish which gives
me confidence in the Group’s ability to deliver
quality housing and service to our customers and
improved returns to our shareholders.
In the year ahead we expect to deliver a controlled
increase in completions volume, maintain our
high level of customer service, complete our
balance sheet optimisation and drive forward our
profitability and return on capital employed.
Ian Tyler
Chairman
Williams Gate, Bovey Tracey
Bovis Homes Group PLC | 5
Bovis Homes Group PLC | 5
Bovis Homes
What we do
Bovis Homes is a UK builder of high quality,
traditional homes. With seven regional
operations and c.1,200 employees at
locations across England, we create new,
sustainable communities, with a strategic
focus on the south of the country.
Our product range encompasses two-bed starter properties
through to large six-bed family homes, with the design and
construction blending tradition with innovation, creating quality
dwellings and developments with contemporary living standards.
Our people have skills across a range of fields, including land
buying, planning, design, surveying, engineering, purchasing,
construction, sales and marketing, public relations and
customer service.
Where we operate
Our regional offices are based around the country, including
New Ash Green (HQ in Kent), Basingstoke, Exeter, Bishops Cleeve
(near Cheltenham), Coleshill (near Birmingham), Stafford and
Milton Keynes.
East
1,556
legal completions
in 2017
1,462
in 2016
West
2,089
legal completions
in 2017
Mercia
Stafford
Coleshill
West Midlands
2,515
in 2016
Cheltenham
Western
Northern
Home
Counties
Milton Keynes
South
East
New Ash Green
Southern
Counties
Basingstoke
South West
Exeter
6 | Strategic report | Business overview
Strategic report | Business overview
Reasons
to invest
Investment in people, systems and
process positions the Group to
deliver a significant improvement
in operational and financial
performance as it progresses
towards its targets for 2020.
Strong business fundamentals
with a high quality, valuable
land bank with great
future visibility.
In addition, balance sheet
optimisation and the business’
strong underlying cash generation
is delivering attractive cash returns
to shareholders.
Building homes people want to live in
Excellent strategic land supply
• Family homes in prime edge of town and village locations
• Significant, deliverable strategic land pipeline
• Traditional 2-storey houses with limited apartments
• Strong track record of strategic land conversion
• Standard house types with market leading new housing
range launching in Spring 2018
Operating in areas with strong
Significant improvement in
market dynamics
financial returns
• Southern location bias with no exposure to the
• Controlled volume growth
London market
• Recovery in profitability to 23.5% gross margin
• Clearly defined operating area; proximity to regional
target for 2020
office a key factor
• Driving ROCE to 25% target for 2020
High quality owned land bank
Capital returns
• Prime locations
• Developing on low risk greenfield sites
• Balanced portfolio across all regions
• Strategy of maximising sustainable dividends
to shareholders
• Special dividend programme to 2020 enhancing
ordinary dividends
• Group will continue to be highly cash generative
Bovis Homes Group PLC | 7
Bovis Homes Group PLC | 7
Housing market overview
The housing market trends our new strategy responds to
Demand continues to
outstrip supply
There continues to be a high demand
for housing as the industry has struggled
to expand quickly enough over recent
years whilst maintaining the required level
of quality. This is due to several issues,
including within our planning system and
supply chain that are touched on later,
and has resulted in the UK facing a severe
housing shortage. However, this demand
for housing means that the outlook for
the industry remains positive, with output
continuing to increase and prices expected
to remain stable.
Constraints on labour resource
A lack of skills to meet the demand for
labour is a challenge for our industry
and we are strongly focused on
developing skills, particularly through
our apprenticeship scheme and our Site
Management training. Where possible we
partner with our supply chain to develop
strong relationships that allow them to
invest in bringing more people into our
industry. The EU vote could have an impact
on the labour market in time if there is less
access to skilled European workers.
Supportive government policy
The Government continues to be
supportive of the industry recognising
the importance of continuing to
build new homes to meet the current
housing shortage. The Help to Buy
equity loan scheme has helped
thousands of buyers purchase a new-
build home and it has encouraged
housebuilders including Bovis Homes
to focus on homes under £600,000.
A further £10 billion of funding has just
been announced to keep the scheme in
place until at least 2021.
Delays caused by detailed
planning challenges
Our relationships with government and
public bodies are important in delivering
the necessary volume of detailed planning
consents and technical approvals required
to meet the UK’s housing shortage.
Planning authorities continue to be under
resourced, affecting their capacity to
manage applications and develop local
plans. The emphasis on neighbourhood
plans and consenting to fewer larger sites
Low interest rates and good
mortgage availability
Despite the recent increase in interest rates
they remain low by historical standards.
This coupled with competitive pricing
within the industry mean low mortgage
rates that continue to boost the industry.
Most observers expect interest rates to
remain low, mortgage availability to remain
strong and lenders to provide reasonable
period fixed rate deals to their customers.
However, there is always the risk that the
mortgage market could become restricted
by government policy or that economic
circumstances lead to rising interest rates.
Responding to government
regulations and standards
Whilst the Government continues to
strongly support the sector there have
been three recent items that have led to
some fallout within the industry. Firstly, the
use of leaseholds to sell houses has been
looked at and the Government has recently
proposed banning the use of leaseholds
related to the sale of houses. This is a
practice that was not adopted by Bovis
Homes and will therefore have no impact.
has constrained outlet growth across the
Secondly, the perceived fall in the quality
sector where no National Planning Policy
of new homes being produced is being
Framework-compliant local plan is in place
looked at with several options open to the
and adopted.
Good land availability
Short-term land availability remains good
supported by the overall planning regime
across the country. Outline planning
approvals are outstripping housing output
and this is delivering a sustainable supply
of land into the market.
Implications of brexit
Whilst the full implications of leaving the
EU will remain unknown for a long period
Government including the possibility of
a new Ombudsman. Given our renewed
focus on delivering a great quality home
to our customers we welcome this review
and will work with whatever measures are
put in place.
Finally the recent review into build out
rates by the Government may lead
to proposals to impact the speed of
production on some sites. Whilst we
support this aim the key challenges to
deliver this are certainty of demand in
specific locations and the availability
of time there is some uncertainty for our
of labour.
industry. Restrictions in the availability
of EU labour could have significant
consequences for the availability of labour
which is already a constraint to growth.
There are also regulatory uncertainties
around current EU legislation, especially
from an environmental perspective and
potential impacts in our supply chain.
“Most observers expect
interest rates to remain low,
mortgage availability to
remain strong and lenders
to provide reasonable
period fixed rate deals to
their customers”
8 | Strategic report | Business overview
Strategic report | Business overview
Housing
market
Demand continues
to outstrip supply -
outlook for the industry
remains positive
Bovis Homes Group PLC | 9
10 | Strategic report | Our business and strategy
Strategic report | Our business and strategy
Creating
sustainable
communities
Committed to delivering high
quality homes
Shorelands, Bude
Bovis Homes Group PLC | 11
Chief Executive’s report | Greg Fitzgerald
operating structure for the reduced level of
completions, and our drive for sales from
older sites and stock properties.
There is significant opportunity to optimise
our balance sheet and we made excellent
progress in the year, resulting in a strong
year end cash position. We are well
positioned to make further progress in
FY18 with a particular focus on releasing
investment across our larger sites.
The business starts the new financial year
in a much stronger position as a result of
all of these initiatives and is ready to drive
towards our medium term financial targets
of 23.5% gross margin and 25% return on
capital employed.
We are pleased to have welcomed Mike
Stansfield to the Board of Directors in
November 2017. Mike has a strong
housebuilding and customer experience
background spanning three decades.
Mike has also become a member of the
Nomination Committee, the Remuneration
Committee and the Audit Committee.
I have been very impressed by the resilience
and dedication of all of the Group’s
employees over the past 12 months and
would like to thank them for their hard
work. I am excited about the year ahead
and on making further good progress to
returning Bovis Homes to being a leading
UK housebuilder.
Operational update
Transformed our
customer service
Transforming our customer service was the
number one priority for 2017 and we have
made very significant progress in the year.
The Group’s HBF Customer Satisfaction
score is trending well above 80% since
the start of the new HBF year (1 October
2017), equivalent to a 4 star housebuilder.
Our controlled and disciplined period ends
in June and December, reflect the step
change in the way we are now operating
and the mind-set across the business.
We have invested in our customer service
function in terms of people and training,
and appointed our Customer Experience
Director who has been leading the
review of every aspect of our customers’
experience with Bovis Homes.
Restructuring
successfully completed
As part of our strategic reorganisation,
during the year we implemented initiatives
to simplify and streamline our operating
structure, to reduce costs and make us
more agile. This has been completed within
the £4m restructuring cost taken in FY17.
We are now on track to deliver against our
target of overheads as a maximum of 5%
of revenue in FY18.
We have re-organised our operational
structure concluding that the business is
best served by seven rather than eight
operating regions. We merged our Eastern
and Southern regions creating a South
East region and a larger Southern Counties
region. With a much greater hands on
approach to management, the proximity
of our developments to each of our
regional offices is a key criterion for
our development land acquisition.
As part of the re-organisation we re-located
our Southern Counties regional office to
Basingstoke, our Northern Home Counties
business to a new permanent office in
Milton Keynes, and are soon to re-locate
our South East regional office to Kings
Hill near Maidstone, all to best serve these
geographies. The business is now well
balanced in terms of geographic spread of
completions with an even distribution of
plots in our land bank.
We reviewed the efficiency of our in-house
functions to ensure the best value approach
and have transitioned to an outsourced or
partially outsourced model for a number
of business areas including legal, planning,
design and engineering.
High quality motivated people
People satisfaction is a key strategic priority
for the Group and we are committed
to investing in the development and
training of our workforce including our
subcontractors. We have benefitted from
a full year of input from our Learning and
Development team and firmly established
our Bovis Homes Training Centre.
In the year we have seen really good
progress in the development of a much
more ‘hands on leadership’ with a far
greater operational focus. We continue to
invest in the training and development of
our seven regional managing directors and
our site teams are now well supported by
both our regional teams and the Executive
Leadership team. Following my initial visit
to all of our developments in my first few
months with the business, I have re-visited
2017 in review
The Group has followed a clear
strategic direction and has made
significant progress towards
implementing its operational
priorities. I am pleased with
the outcome for 2017 with the
business delivering against all
of its operational and financial
targets for the year.
We reduced our rate of production to
allow us to reset the business, improve
our production processes, and consistently
deliver high quality new homes to our
customers. As planned, we delivered 3,645
(FY16: 3,977) in the year in a controlled
and disciplined manner.
In re-setting the business, we have driven
sales from our older, lower margin sites
and significantly reduced our levels of both
stock and part exchange properties.
There has been a step change in the
way we operate. There is a far greater
operational and commercial focus across
all aspects of the business, driven by a
hands on management approach and
facilitated by our new regional structure.
Our sites are set up in the right way from
the start with a well managed progressive
build programme.
We completed a comprehensive review
of our consented and strategic land bank,
identified sites for disposal outside of our
core operating areas, and took a land write
down of £3.3m through normal operating
costs in the year.
As expected, the Group’s profitability in the
year was also impacted by a high level of
build costs within our cost base coming into
the year, increased investment across the
business, in particular, in process change
and customer service, an overweight
12 | Strategic report | Our business and strategy
most developments on at least one
occasion, and along with the Executive
Leadership team, will continue to be very
active across all areas of the business.
The quality of our site managers is critical
and we are focused on ensuring we have
the very best site managers across all
our developments. We have introduced
an attractive new remuneration package
and greater level of training and
development specifically targeted at
this group. We have also revised the
sales commission structure for our
sales advisors to ensure that they
are better aligned with delivering
margin progression across the Group.
Investment in the training and
development of our commercial teams
is a key focus for FY18.
High quality build
We have focused on improving our build
procedures and on driving efficiency
and high standards through ‘getting
it right first time’. We have appointed
five new regional construction directors
and invested in our site teams with a
resulting reduction in the site manager
headcount turn.
The slowed rate of production in FY17
has allowed us to ensure all of our
developments are set up correctly
from the start, with the construction
directors now controlling that process.
The Group is committed to delivering a
high standard of health and safety for
all our employees, subcontractors and
on-site visitors. In the year we brought
our health and safety inspections
in-house which will support a more
proactive culture and approach.
Progress with commercial
We have invested in a new commercial
system which will be implemented
across the business in Q2 FY18 and will
drive a significant improvement in the
way our commercial teams operate.
It will standardise processes driving best
practice across the Group, support more
accurate forecasting of our cost base,
increase visibility and deliver overall
improved efficiency.
Strategic report | Our business and strategy
Land
The fundamentals of our land bank are
very strong; building traditional family
housing in prime locations predominantly
on greenfield sites. We have a southern
location bias with no exposure to London.
We use a high proportion of standard
housing and are introducing an element
of bespoke housing where appropriate to
maximise the value of each development.
Given our medium term targets of 4,000
completions per annum and a 3.5 to 4.0
year owned land bank, we slowed our
rate of land acquisition in the year.
This has allowed us to be more selective
with our land acquisition and with the
land market remaining attractive, the
land acquired in FY17 is expected to
deliver a gross margin in excess of 26%.
We have had significant success in
progressing the planning status of our
valuable strategic land assets including
gaining consent in the year for our
developments at Bishop’s Stortford,
Witney, Petersfield, Drake’s Broughton
and Didcot. We expect to deliver
c.10,000 plots from our strategic land
bank over the next 5 years, with
the returns exceeding our minimum
hurdle rates. We will continue to pursue
new strategic land opportunities that are
within our core operating area.
We have great forward visibility on our
land bank with 100% of our FY18 land
having detailed planning consent, and
93% of our land for FY19 and 70% for
FY20, already secured.
Affordable housing
Affordable housing is a very important
part of our business and represents a
significant opportunity for the Group.
We are establishing strong relationships
with the registered providers, working
closely with them to understand their
priorities and ensure support for their
initiatives, and strengthening Bovis
Homes’ reputation in this area. We are
exchanging contracts on our affordable
delivery earlier, reducing our risk and
effectively managing our working capital.
In FY17 we exchanged on 43 affordable
contracts with 82% of the affordable
content for FY18 now contracted on.
In the year we also entered into an
agreement with Hampshire’s largest
Housing Association, Vivid, to deliver
them c.75 new homes, both private
and affordable, at our development in
Boorley Green.
Margin initiatives
Driving Group profitability is key for FY18
and beyond, and we have launched four
major group wide margin initiatives:
1. Price optimisation
We are focused on driving our prices
across all our products and developments.
This reflects our priority of controlled volume
growth, high levels of customer satisfaction
and increased profitability. In particular, our
sales advisors have a new sales commission
structure which is aligned to optimising price.
2. Specification review
We have made amendments to our build
specification which have improved the
quality of our production with a lower
cost base. This specification review is
ongoing both in terms of the fabric of our
build, and a review of the scope of fixtures
that are delivered as standard in our homes.
As a result, we see further opportunities to
optimise both pricing and reduce our costs
through these changes.
3. Cost contingency release
In FY17 we increased the cost contingency
across all our developments to 4% on the
basis of what was required and in
light of the operational challenges we
were addressing. We have made significant
improvements to our operations and with
further progress expected in FY18, we
are targeting to release a proportion of
this cost contingency.
4. New housing range
We are eagerly awaiting the launch of our
new housing range in April 2018, with
completions coming through from FY19.
We have undertaken a complete review of
the sales and construction specifications and
developed an industry leading housing
range designed to meet the needs of
today’s customer. The range is for both our
private and affordable homes and will not
only deliver added value to our customers, it
will optimise prices and drive a reduction in
production costs across the Group.
Bovis Homes Group PLC | 13
Bovis Homes Group PLC | 13
Chief Executive’s report | Greg Fitzgerald
Delivering our medium
term targets
The Group has set out its medium term
targets to be achieved by FY20 which will
return Bovis Homes to being a leading
UK housebuilder and deliver significantly
improved returns to our shareholders.
The management incentive schemes are
closely aligned to the Group’s medium
term targets.
4 star HBF customer
satisfaction rating
• Top quartile of the UK housebuilders
for customer satisfaction
Progress in FY17:
4,000 completions p.a.
• Optimal business size for the Group’s
operational structure and land bank
Progress in FY17:
• Regional restructuring successfully
• Significant improvement in customer
completed
• On track to deliver increase in
completions in-line with market
expectations for FY18 in a controlled
and disciplined manner
satisfaction with HBF score (1
Oct 17 onwards) trending at well
above 80%, equivalent to a 4 star
housebuilder
• Investment in customer service
function including people and training
• Complete review of the Bovis Homes
customer journey led by Customer
Experience Director
margin in excess of 26%
• Direct selling and marketing,
5% administrative expense
as a % of revenue
• Minimise fixed costs, maximise
economies of scale
Progress in FY17:
• Restructuring completed including
outsourcing of certain functions
planning, design, engineering and
legal costs now included in cost
of sales
• Investment in information systems to
deliver benefits from FY18
• On track to deliver a maximum 5%
overhead in FY18
We have made very good progress
against a number of these targets
in FY17. With our focus on
profitability and completing our
balance sheet optimisation, we
expect to drive forward the Group’s
financial performance, including
return on capital employed, in FY18.
3.5 to 4.0 year owned
23.5% gross margin
land bank
• Manage land investment through
the cycle, minimising risk
Progress in FY17:
• Complete review of consented and
strategic land banks
• Slowed rate of consented land acquisition
in FY17
• Progress made with divestment of sites
outside of our core operating areas and
progressing with the potential to reduce
our investment on larger sites
• Deliver embedded margin within
our land bank
Progress in FY17:
• Operational issues addressed
• Focus on ‘getting it right first time’
• New land acquired in FY17 at gross
• Four new major margin initiatives
launched
Min £180m net cash from
25% return on
balance sheet optimisation
capital employed
• Reduction in net assets
• Increased profitability and balance
Progress in FY17:
• £30.5m land disposals
• £28.9m reduction in part exchange
properties, £10.0m reduction in
stock properties
• Shared equity disposal with a total
of £28.8m cash proceeds
sheet optimisation
Progress in FY17:
• Strong focus on effective balance
sheet and cash management
• Increase in FY18 profitability and
balance sheet optimisation to drive
significant improvement in ROCE
in FY18
14 | Strategic report | Our business and strategy
Strategic report | Our business and strategy
Outlook
We started the year with a strong forward
sales position representing c.40% of the
consensus FY18 forecast revenue for the
Group. Sales in the first 8 weeks of this year
have been good with our average private
sales rate per site per week up 14% to 0.5.
Pricing has been running slightly ahead of
our expectations.
We are confident of delivering growth
in completions for the year in line with
expectations in a controlled and disciplined
manner.
We expect to drive forward the Group’s
profitability with, in particular, the launch of
our four major margin initiatives. Combined
with the completion of our balance sheet
optimisation in FY18, we should see a
significant improvement in the Group’s
return on capital employed as we progress
towards our target of 25% ROCE for FY20.
Greg Fitzgerald
Chief Executive
Ordinary dividend and
capital return plan
The Board intends to pursue a strategy
of maximising sustainable dividends
to shareholders. In setting the level of
dividends the Board will consider a range
of factors including the extent to which the
dividend is covered by underlying earnings
and free cash flow, the prevailing strength
of the balance sheet and general economic
circumstances, with particular regard to the
cyclicality of the industry.
The Board is pleased to recommend a final
ordinary dividend of 32.5p (FY16: 30.0p)
bringing the total ordinary dividend for
FY17 to 47.5p (FY16: 45.0p), representing a
6% increase on the prior year. Based on the
current operating plan and reflecting the
Board’s confidence in the outlook for the
business, the Board intends to increase the
ordinary dividend for shareholders for FY18
by a further 20% to c.57 pence per share.
Thereafter it intends to move progressively
towards an ordinary dividend twice covered
by earnings in FY20.
In addition, the Board intends that surplus
capital will be returned to shareholders via
special dividends totalling £180m or c.134
pence per share in the three years to FY20,
with the first special dividend payment of
£60m or c.45 pence per share expected to
be paid towards the end of 2018.
The Group will continue to be strongly
cash generative and given the balance
sheet position the Board is committed to
reviewing capacity for further returns to
shareholders over time.
FY 2017
FY 2018
FY 2019
FY 2020
Ordinary dividend
47.5p per share
c.57p per share
Trend to 2 x cover
Special dividend
nil
c. 45p per share
Total c.89 pence per share
Balance sheet optimisation
Optimising the balance sheet represents a
significant opportunity for the Group and
we made excellent progress in the year
towards our target of delivering a minimum
of £180m of additional cash flow into the
business by December 2018.
On land we expect to realise c.£80 to
£100m of cash and in FY17 we made five
land sales realising proceeds of £30.5m.
Our focus in FY18 will be on our larger sites
including Wellingborough and Sherford,
where we will look to divest a share of
the development, most likely through a
partnership arrangement.
Our initiatives on work in progress are
expected to generate between c.£40m to
£80m of cash. We made good progress in
the year with a reduction in our level of part
exchange properties of £28.9m and stock
properties of £10.0m. Further reductions in
work in progress levels across the Group is a
key focus for FY18, and will be a significant
contributor to the cash delivered this year as
well as the drive towards our medium term
ROCE target of 25%.
We concluded the disposal of our shared
equity portfolio in H2 17, generating
total cash receipts of £28.8m. We also
completed the disposal of three owned
offices with cash proceeds of £8.4m and
the sale of our site cabins and fork lift
trucks. In total, we expect the disposal of
non-returning assets to deliver between
c.£50m and £60m of cash.
Market
The market fundamentals are strong
and we continue to see good levels of
demand for new homes across all our
regions with pricing remaining firm.
Despite the recent increase in interest
rates they remain at historic low levels
with good competition in the mortgage
lending market. The Government is
committed to increasing the supply of
new homes in the UK and their policy on
housing and planning, and commitment to
Help to Buy, reflect this.
Bovis Homes Group PLC | 15
Our business model
Driving value across the cycle
We have core expertise and competitive advantage across all the
areas we operate, with our business model set up to deliver a strong
performance across the cycle
Successful
conversion of
strategic
land
Acquisition
of prime location
consented
land
1
Delivering
excellent customer
service
4
Meeting
our
customers’
needs
Focused
on the entire
customer
journey
First
class sales
advisors
s
r
e
m
o
t
s
u
c
A
N
D
r
u
O
d
n
a
s
e
l
a
S
ervice T a r g
e t e d
l a nd acquisitio
Our DNA
n
Deliverable,
high quality
land supply
Southern
England,
greenfield
focus
In-house
planning
expertise
Well
designed,
contemporary
housing
range
D
e
s
i
g
n
O
u
r
D
N
A
a
n
d
p
a
n
l
nin
g
Strong
relationships
with suppliers and
subcontractors
Traditional
methods of
construction
High
build
standards
Our DN A
Build
3
Safely
delivering to
programme
Working with
local communities
to meet their
needs
2
Creating
places where
people aspire
to live
16 | Strategic report | Our business and strategy
Strategic report | Our business and strategy
Our DNA
building and selling
quality family
homes
1
2
3
4
Land
Design
Build
Sales
Bovis Homes Group PLC | 17
Strategic priorities
Strategic
priorities
We have established
a clear set of strategic
priorities which underpins
how we operate across
all aspects of our business
and will support driving
towards our medium
term targets
Furlong Rise, Cheltenham
18 | Strategic report | Our business and strategy
Strategic report | Our business and strategy
Strategic priorities
Risks involved
Measuring success
People satisfaction
See page 20
Investment in the
development and training
of our people to ensure a
committed, motivated and
engaged workforce
• People capability and change
• Unplanned staff turnover
• Health, safety and environmental
• Employee engagement
• Increased regulation
score
Customer satisfaction
See page 22
• Customer service
• HBF customer satisfaction
• Increased regulation
• NHBC reportable items
Delivering our customers
quality new homes and
a high level of customer
service that meets their
expectations throughout
their entire journey with
Bovis Homes
Healthy and safe working environment
See page 24
• Materials and subcontract labour
• RIDDOR
• Health, safety and environmental
• Accident frequency rate
• Increased regulation
Ensuring the health and
safety of our people and
minimising the accident
frequency rate whilst
delivering on time, is
unequivocally at the core of
our business
Enhanced shareholder returns
See page 26
Driving enhanced returns for
our shareholders through
increased profitability, return
on capital employed and
total shareholder returns
• Economic and sales environment
• Profitability
• Materials and subcontract labour
• ROCE
• Project delivery
• TSR
• People capability and change
• Increased regulation
Bovis Homes Group PLC | 19
Strategic priorities
People satisfaction
Investment in the development and training of our
people to ensure a committed, motivated and
engaged workforce
Our approach
Progress in 2017
Priorities for 2018
People development
is a priority and as
a company, we are
investing in more training
than ever before.
We are developing and supporting a culture
of ‘hands on leadership’ with a greater
operational focus, and are facilitating
quicker decision making and accountability
across the business. We have closely aligned
our employee incentive packages with the
strategic goals and medium term targets of
the Group.
Key Perfomance
Indicators
20 | Strategic report | Our business and strategy
In 2017, we invested in more training than
ever before for our employees (3,914 training
days (FY16: 2,892)). We have established the
Bovis Homes Training Centre and developed
a range of training opportunities for all
our employees. In the year, we introduced
our new development programme for our
regional managing directors which has
progressed well, we restructured our sales
training to include both knowledge and
skills elements, and 94% of our employees
received customer service training.
We will continue to invest in the
training and development of our people
at this higher level. The new Bovis
Homes Leadership Framework will
deliver training to all of our senior
managers, embedding our Bovis Homes
Leadership style. Our focus will also
remain on ensuring we have the highest
quality site managers on all of our
developments and our next priority area
for 2018 will be our commercial teams.
In 2018 we will also be investing in training
to deliver the successful implementation
of our new COINS software to be launched
across the Group in April.
Our overall focus is to continue to provide
our employees a stable and thriving
workplace with a resulting reduction in
the rate of unplanned staff turnover across
the Group.
We are committed to
expanding the development
opportunities for our specialist
contractors and have secured
funding from the Home
Building Skills Partnership
to support this.
There has been a priority focus on ensuring
we have the highest quality site managers
across all our developments and in the
year we have introduced an attractive
remuneration package and greater level of
training and development for this group.
Our training programmes extend to our
subcontractors and 100 of them have
qualified as site safety supervisors in the
year at no cost to them.
We signed the HBF’s Home Building
Skills Pledge which commits us to working
with others in the industry, including
subcontractors, to recruit and train
more people to the highest industry-
agreed standards.
We remain very committed to our Bovis
Homes Apprenticeship Scheme and
welcomed 20 new recruits in the year.
In 2017, we launched a new monthly Peakon
employee survey which measures employee
engagement and has shown an improving
level as we have progressed through 2017.
The increase in planned staff turnover in
2017 reflects both a challenging period and
a period of restructuring.
Unplanned
staff turnover
31%
(2016: 20%)
Peakon
engagement score
7.3
(2016: n/a)
Strategic report | Our business and strategy
Investing
in our
people
Putting the focus on training
and employee engagement
Bovis Homes Group PLC | 21
Strategic priorities
Customer satisfaction
Delivering our customers quality new homes and
a high level of customer service that meets their
expectations throughout their entire journey
with Bovis Homes
Our approach
Progress in 2017
Priorities for 2018
We have put the
customer back at the
core of everything
we do with a firm
commitment across all
our regions to deliver
high quality homes.
We have enhanced the resource across our
customer service function to improve both
our project management capability and
our day to day operational capacity.
We are working much more closely with
our customers creating a more personalised
and involved customer journey, where we
strive to best meet our customers’ evolving
needs. Customer satisfaction is a key
performance indicator for all levels
of management.
Transforming our customer service has
been a number one priority since the start
of 2017 and we have made good progress.
We have invested in our customer service
function in terms of people and training
to ensure we are delivering our customers
the high and consistent level of service they
expect when buying a new home.
In the year, we provided customer service
training to 94% of our staff and appointed
our Customer Experience Director.
We also formed the Homebuyers Panel
composed of our customers, who provide
advice and challenge as we review all
aspects of our customer service.
We have seen a significant improvement in
our customer satisfaction scores and are on
track to achieve our target of being a
4 star housebuilder.
In 2018 we will see the launch of our
new housing range which will deliver
26 attractive new house types. We have
developed this new range with input from
our customers.
We will continue to improve the capability
of our customer service team through
training and development.
We are very focused on
delivering a 4 star customer
satisfaction rating reflecting
the step change in customer
service across the Group.
We will focus further on the quality of our
homes to reduce further the level of NHBC
reportable items we receive.
Key Perfomance
Indicators
HBF customer
satisfaction(1)
HH
(2016: HHH)
NHBC
reportable items
0.38
(2016: 0.47)
(1) Based on HBF star rating announced in March of that year relating to the prior period of 1 October to 30 September.
22 | Strategic report | Our business and strategy
Strategic report | Our business and strategy
Delivering
for our
customers
Listening and engaging to
improve quality and service
Bovis Homes Group PLC | 23
Bovis Homes Group PLC | 23
Strategic priorities
Healthy and safe
working environment
Ensuring the health and safety of our people and
minimising the accident frequency rate whilst
delivering on time, is unequivocally at the core of
our business
Our approach
Progress in 2017
Priorities for 2018
The Group is committed to
delivering a high standard
of health and safety
for all our employees,
subcontractors and
other on-site visitors.
We have in place, comprehensive
health and safety training, clear and
accountable management processes and
thorough, regular and transparent reporting
of performance.
We are investing in our site managers and
site teams to ensure our sites are well set
up from the start to deliver their production
schedule. We are working in partnership
with our subcontractors and promoting
best practice across the organisation.
In 2017 we developed a much more ‘hands
on approach’ across all aspects of our
business resulting in far more frequent
visits to our developments by our Regional
and Executive management teams.
The restructuring of our regions and the
re-location of two of our regional offices
has assisted this, and the proximity of
our developments to the regional office
is a key criteria for land acquisition and
development. We have invested in our site
managers and site teams, re-enforcing the
importance of their role on site and across
the business.
Our aim of reducing the NHBC risk score
across the business was achieved and
our accident frequency rates for RIDDORs
and minor injuries were both decreased.
Our Warwick Gates development was
commended in the 2017 NHBC Health and
Safety Awards.
Our commitment to our subcontractors was
demonstrated by the provision of safety
training for them, resulting in 100 site
supervision qualifications in the year.
Our health and safety inspections and
support is now all delivered in-house rather
than through the NHBC. It is structured
to reward good work and sharing best
practice, as well as highlighting areas
that need improvement. The in-house
model also helps to drive a more pro-active
approach to health and safety and
not just a compliance role, and is the
preferred option of most of the larger
UK housebuilders.
We are developing a
new health and safety
management system which
will be rolled out this year.
It will simplify processes and
as a result be more time
efficient for site managers.
Key Perfomance
Indicators
RIDDOR
21
(2016: 32)
Accident frequency rate
(RIDDOR incidence)
410
(2016: 620)
24 | Strategic report | Our business and strategy
Strategic report | Our business and strategy
Keeping
our sites
safe
Committed to protecting
the public and our people
Bovis Homes Group PLC | 25
Strategic priorities
Enhanced
shareholder returns
Driving enhanced returns for our shareholders
through increased profitability, return on capital
employed and total shareholder returns
Our approach
Progress in 2017
Priorities for 2018
The Group has set out its
medium term targets to
be achieved by
2020 which will return
Bovis Homes Group to
being a leading UK
housebuilder and deliver
significantly improved
returns to shareholders.
The management incentive schemes are
aligned to these medium term targets.
Reflecting the Group’s commitment to
increasing the efficiency of the balance
sheet through a reduction of capital
employed in the business, the Board
intends that this surplus capital will
be returned to shareholders via
special dividends.
Key Perfomance
Indicators
26 | Strategic report | Our business and strategy
2017 has been a year of re-setting the
business and addressing operational issues.
Group profitability has been adversely
impacted by a number of factors including
driving sales from our older, lower margin
sites, investment in process change and
customer service initiatives, increased build
costs within our cost base brought in to the
year and an overweight operating structure
for the reduced volume. We have made
good progress in addressing all of these
issues and the Group delivered against all
its operational and financial targets for
FY17 with in particular, excellent progress
with our balance sheet optimisation.
The Group is committed to building upon
the operational progress made in 2017
and is confident of delivering a significant
improvement in financial performance and
profitability, making good progress towards
achieving our 2020 medium term targets.
Reflecting the strong outlook,
the Board anticipates
increasing the Ordinary
dividend by 20% in FY18
and making its first Special
dividend payment towards
the end of 2018.
Profit before tax
Total shareholder return
£114.0m
(2016: £154.7m)
57%
(2016: 18%)
Return on capital
employed
(pre exceptional)
13.7%
(2016: 17.0%)
For calculation of ROCE, see table on page 146
Strategic report | Our business and strategy
Focus
on better
returns
Driving improvements for
our shareholders
Bovis Homes Group PLC | 27
and reviewed by the Board. It is also in line
As part of its annual strategic review
Risk management
The Board is required to assess the
prospects of the Company, taking account
of its current position and principal risks,
and to explain how this has been done,
over what period and why that period is
considered appropriate.
The assessment context
The Board has considered the longer term
viability of the Group, reviewing this over
a 5 year period based on the strategy as
outlined on pages 16 to 27 to the current
performance of the Group and its principal
risks. The average life cycle of our housing
developments falls within a 5-year time
period and this aligns with the timeframe
focused on for the annual strategic review
exercise conducted within the business
with the financing arrangement extended
by the Group in 2017.
The Group’s new strategy was
communicated in detail during 2017
with a renewed focus on improving
operational performance. The Board has
considered the Group’s risk appetite and
believes this to be towards the lower end
of the risk scale for the housebuilding
sector. The Board have highlighted the
following elements of the strategy as key
considerations in reaching this view, all of
which have an impact on the Group’s key
investment decisions:
• Focused on a Southern biased
geography
• Targeted at edge of town and large
village greenfield locations
• Delivering a high proportion of standard
Portfolio designed housing
• Traditional two storey family housing
is the core product offering with only
limited low rise apartments in the mix
• The Group’s strategy is to drive cash into
the business leading to expected low
levels of debt
28 | Strategic report | Our business and strategy
The assessment process and
assumptions
A Risk Governance Committee operates
with representation from all parts of
our business to identify and monitor
the threats identified from within the
Group. This is coupled with a robust
assessment carried out by the Board to
formally agree and assess the principal
risks facing the Group, including those
The key mitigating actions we expect the
business to take in a downturn include
restricting investment in land, reducing the
level of production and work in progress
held and optimising our overhead base to
ensure it aligns with the scale of operations
through the cycle.
The results of this stress testing indicated
that the Group would be able to
withstand the impact of these
that would threaten the execution of its
assumptions, taking into account the
strategy, future performance and liquidity.
impact of mitigating actions, on the
Management and mitigation of these
principal risks, as set out on page 30 to
Group’s financial performance.
33, have been taken into consideration
Viability statement
when considering the future viability of
the Group.
the Board also considered the Group’s 5
year financial plan, the core assumptions
underpinning this plan and how the
current economic and regulatory
environment may impact this plan.
Based on the results of this analysis, the
Board have a reasonable expectation that
the Company will be able to continue in
operation and meet its liabilities as they fall
due over the five year period reviewed.
Going concern
The directors also considered it appropriate
The early years of the financial plan are
to prepare the financial statements on
prepared in detail with the basis being the
the going concern basis, as explained
development of our existing land bank.
in the basis of preparation paragraph in
There is inherently more uncertainty in the
note 1.3 to the accounts. In forming this
later years of the plan as these incorporate
view, the Group has analysed its forecast
a higher level of assumed housing
completions from land owned currently
without planning or land not currently
owned by the Group.
The Group’s financial plan has been
reviewed in the context of its operational
covenant compliance over the period
linked to its banking arrangement, arriving
at an assessment of the headroom evident
between the forecast covenant headroom
and the outcomes necessary to achieve
covenant compliance.
performance during 2017 and stress tested
The Group entered into its current
against scenarios to assess the future
banking arrangement on 3 December
viability of the Group.
The potentially highest impact risks,
from a Group viability point of view, are
seen as those which arise from either a
downturn in the economic environment
or fundamental changes in government
policy, leading to decreased affordability,
reduced demand for housing and falling
house prices.
In testing our economic downturn
scenarios there have been sensitivities
applied to the assumptions on sales
rates, pricing and costs and interest rates.
The sensitivities along with the impact of
the expected mitigating actions that would
be taken by the Group, were overlaid on
the Group’s 5 year Strategic Plan.
2015 and it was extended for one year in
both December 2016 and January 2018.
This arrangement provides a committed
revolving credit facility with a limit of
£250 million maturing in December 2022.
The Group regards its current banking
arrangement as adequate for its needs
in terms of flexibility and liquidity. As at
31 December 2017, the Group had nil
drawings under the facility and had net
cash of £145 million.
More details on the Group’s approach to
financial risk management are laid out in
note 4.6.
Strategic report | Our business and strategy
Keble Fields, Fairford
Bovis Homes Group PLC | 29
Principal risks and uncertainties
Description
Potential Impact
Link to strategic
priorities
Annual
change
What’s changed over the last year?
How we are mitigating the risks?
Adversely affects consumer
confidence and demand
for new homes, with
consequential impact
on revenues, profits and
potentially asset carrying
values.
Increased restrictions on
mortgages granted could
reduce demand for homes
and therefore revenues
and profits. Furthermore,
changes to the Help to
Buy initiative could impact
potential sales to first
time buyers.
The Group’s ability to build
is constrained and may
impact profitability if
costs rise.
Unable to deliver sufficient
shareholder returns from
current developments or
a failure to achieve our
anticipated completions.
Deterioration of the
health of the UK
economy, brought
about by higher interest
rates and increasing
unemployment,
leading to decreased
affordability, reducing
demand for housing and
falling house prices.
Increasing production
across the industry may
lead to shortages of
both materials and
subcontract labour.
Following recent
exchange rate
fluctuations material
prices have increased
and could rise further.
Inability to convert
strategic land assets to
support required
housing development.
A failure to achieve our
operational targets in
terms of forecasted life of
site costs or the execution
of our build programme.
• Stamp duty land tax will be abolished for first-time purchases
• Close monitoring of lead indicators in the housing market, notably visitors
up to £300,000.
to sales outlets, sales rates and price achieved.
• Bank of England interest rate rise of 0.25% during November
• Maintaining a rigorous approach to land acquisition, with spend
2017 with more forecast in 2018.
focused in the south of England, where the economy is expected to
• Ongoing negotiations between the UK and EU have so far
remain more robust.
failed to address the uncertainty regarding a final Brexit deal.
• A focus on cash generation to further strengthen our financial resilience.
• Help to Buy scheme has been criticised in the media as a
• Investment in our portfolio of homes to further their appeal and suitability
component of rising house prices and excessive profits within
to a wider range of potential customers.
the homebuilding sector.
• Supply issues led to further wage rises for skilled tradesmen.
• Maintain clear visibility of future production requirements and its impact on
• EU net migration has reduced compared to previous years.
suppliers and subcontractors.
• Fully established offices in the heart of each regional
operating area.
• Maintain close relationships with key suppliers and subcontractors to gain
visibility of future supply against need.
• Centralised processes to monitor life of site costs across all our active sites,
providing early warning and trend analysis.
• Revised remuneration package for our employed site managers to retain a
quality workforce.
• Government’s housing White Paper published February 2017
• Monthly build and cost forecasting processes with regular group oversight
reviewing the consent and planning processes.
of regional performances.
• A reduction in our growth targets to enable a steady state
• Close monitoring of build performance and delivery against plan through
regular onsite visits from the leadership community.
• Change in leadership driving ‘hands on’ operational
• A decision to reduce future land holding from 5 to 3.5 years over the
build process.
management.
medium term.
• Investment has been prioritised to deliver new system capability to improve
build and spend control and forecasting.
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30 | Strategic report | Our business and strategy
Principal risks and uncertainties
Strategic report | Our business and strategy
Description
Potential Impact
What’s changed over the last year?
How we are mitigating the risks?
Link to strategic
priorities
Annual
change
Deterioration of the
health of the UK
economy, brought
Adversely affects consumer
confidence and demand
for new homes, with
about by higher interest
consequential impact
rates and increasing
unemployment,
leading to decreased
affordability, reducing
demand for housing and
falling house prices.
on revenues, profits and
potentially asset carrying
values.
Increased restrictions on
mortgages granted could
reduce demand for homes
and therefore revenues
and profits. Furthermore,
changes to the Help to
Buy initiative could impact
potential sales to first
time buyers.
Increasing production
The Group’s ability to build
across the industry may
is constrained and may
impact profitability if
costs rise.
lead to shortages of
both materials and
subcontract labour.
Following recent
exchange rate
fluctuations material
prices have increased
and could rise further.
Inability to convert
strategic land assets to
support required
housing development.
A failure to achieve our
operational targets in
terms of forecasted life of
site costs or the execution
of our build programme.
Unable to deliver sufficient
shareholder returns from
current developments or
a failure to achieve our
anticipated completions.
s
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a
c
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• Stamp duty land tax will be abolished for first-time purchases
• Close monitoring of lead indicators in the housing market, notably visitors
up to £300,000.
to sales outlets, sales rates and price achieved.
• Bank of England interest rate rise of 0.25% during November
• Maintaining a rigorous approach to land acquisition, with spend
2017 with more forecast in 2018.
focused in the south of England, where the economy is expected to
• Ongoing negotiations between the UK and EU have so far
remain more robust.
failed to address the uncertainty regarding a final Brexit deal.
• A focus on cash generation to further strengthen our financial resilience.
• Help to Buy scheme has been criticised in the media as a
• Investment in our portfolio of homes to further their appeal and suitability
component of rising house prices and excessive profits within
to a wider range of potential customers.
the homebuilding sector.
• Supply issues led to further wage rises for skilled tradesmen.
• Maintain clear visibility of future production requirements and its impact on
• EU net migration has reduced compared to previous years.
suppliers and subcontractors.
• Fully established offices in the heart of each regional
operating area.
• Maintain close relationships with key suppliers and subcontractors to gain
visibility of future supply against need.
• Centralised processes to monitor life of site costs across all our active sites,
providing early warning and trend analysis.
• Revised remuneration package for our employed site managers to retain a
quality workforce.
• Government’s housing White Paper published February 2017
• Monthly build and cost forecasting processes with regular group oversight
reviewing the consent and planning processes.
of regional performances.
• A reduction in our growth targets to enable a steady state
• Close monitoring of build performance and delivery against plan through
build process.
regular onsite visits from the leadership community.
• Change in leadership driving ‘hands on’ operational
• A decision to reduce future land holding from 5 to 3.5 years over the
management.
medium term.
• Investment has been prioritised to deliver new system capability to improve
build and spend control and forecasting.
Bovis Homes Group PLC | 31
Bovis Homes Group PLC | 31
Principal risks and uncertainties
Description
Potential Impact
Link to strategic
priorities
Annual
change
What’s changed over the last year?
How we are mitigating the risks?
Product quality and
service standards that do
not meet our customers’
expectations.
The reputation of the Bovis
Homes brand is diminished
with an adverse effect on
sales volumes and returns.
i
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c
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e
s
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e
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e
p
O
An inability to attract,
develop or retain
good people.
The loss of key staff or the
failure to attract, develop
and retain suitable talent
may inhibit the Group’s
ability to achieve its strategy.
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n
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Unsafe practices in our
construction activities
causing injury or death
to our stakeholders and
damage to communities.
A loss of trust in the
ability of Bovis Homes to
build homes safely and
in an environmentally
responsible way, affecting
the reputation and financial
health of the business.
Inability to adhere to
an increasingly stringent
regulatory planning
and technical
requirements affecting
the housing market.
There is a specific
risk in 2018 due to
a new regulatory
framework relating to
the management of
customer and employee
information.
Increased costs and
significant delays in
production leading to
reduced legal completions.
Reduced number of active
sales outlets due to delays
in planning process leads to
lower build and sales activity.
Business disruption, expense
and potential fines from a
failure to manage customer
and employee data in
accordance with legislation.
32 | Strategic report | Our business and strategy
• Increased media scrutiny of customer issues relating to home
• All homes built are subject to NHBC building control inspections.
build quality across the sector.
• All Party Parliamentary Group for Excellence in the
Built Environment has called for the establishment of
an ombudsman.
• Customer satisfaction put back to being the centre of
everything the business does.
regional directors.
• All staff are trained in the provision of the Group’s customer service process.
• Bovis Homes build a range of high specification homes which are currently
being reinvigorated for launch in 2018.
• Quality inspections completed by build staff, sales staff and
• Introduction of a Customer Home Buyer panel to gather insights which are
being used to improve our customer offering and service.
• Consolidation of our regional businesses.
• A reward system that motivates achievement of performance targets.
• Employers with more than 250 staff will be required by law
• Development programmes tailored to our employees.
to publish statistics relating to gender within their company.
• Uncertainly of subcontractor supply due to EU nationals’
perception of final Brexit terms and conditions.
• Assistant site manager and apprenticeship schemes.
• Succession planning reviewed regularly to ensure pipeline for our leaders
within the business.
• Investment made in additional health and safety advisors to
• A consultative committee reviews performance and regulatory requirements
increase performance across the business.
for health, safety and environmental matters.
• Reinforced as a key priority at every level within the business.
• Monitoring health, safety and environmental performance against a
standard of excellence.
• A requirement for regular training for all staff and site based personnel.
• Effective communication processes in place to proactively manage and
monitor issues.
• Consumer Code for New Home Builders launched
• Self-assessment process to check that controls and external standards are
November 2017.
on May 2018.
being adhered to across the business.
changes and impacts.
• General Data Protection Regulation becomes effective
• Participation in industry forums and events discussing potential regulatory
• Establishment of a Steering Group to monitor implementation of General
Data Protection Regulation requirements.
+
=
=
+
Description
Potential Impact
What’s changed over the last year?
How we are mitigating the risks?
Link to strategic
priorities
Annual
change
Strategic report | Our business and strategy
• Increased media scrutiny of customer issues relating to home
• All homes built are subject to NHBC building control inspections.
build quality across the sector.
• All Party Parliamentary Group for Excellence in the
Built Environment has called for the establishment of
an ombudsman.
• Customer satisfaction put back to being the centre of
everything the business does.
• All staff are trained in the provision of the Group’s customer service process.
• Bovis Homes build a range of high specification homes which are currently
being reinvigorated for launch in 2018.
• Quality inspections completed by build staff, sales staff and
regional directors.
• Introduction of a Customer Home Buyer panel to gather insights which are
being used to improve our customer offering and service.
An inability to attract,
The loss of key staff or the
• Consolidation of our regional businesses.
• A reward system that motivates achievement of performance targets.
• Employers with more than 250 staff will be required by law
to publish statistics relating to gender within their company.
• Development programmes tailored to our employees.
• Assistant site manager and apprenticeship schemes.
• Uncertainly of subcontractor supply due to EU nationals’
perception of final Brexit terms and conditions.
• Succession planning reviewed regularly to ensure pipeline for our leaders
within the business.
• Investment made in additional health and safety advisors to
• A consultative committee reviews performance and regulatory requirements
increase performance across the business.
for health, safety and environmental matters.
• Reinforced as a key priority at every level within the business.
• Monitoring health, safety and environmental performance against a
standard of excellence.
• A requirement for regular training for all staff and site based personnel.
• Effective communication processes in place to proactively manage and
monitor issues.
• Consumer Code for New Home Builders launched
• Self-assessment process to check that controls and external standards are
November 2017.
being adhered to across the business.
• General Data Protection Regulation becomes effective
• Participation in industry forums and events discussing potential regulatory
on May 2018.
changes and impacts.
• Establishment of a Steering Group to monitor implementation of General
Data Protection Regulation requirements.
Bovis Homes Group PLC | 33
Bovis Homes Group PLC | 33
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Product quality and
The reputation of the Bovis
service standards that do
Homes brand is diminished
not meet our customers’
with an adverse effect on
expectations.
sales volumes and returns.
develop or retain
good people.
failure to attract, develop
and retain suitable talent
may inhibit the Group’s
ability to achieve its strategy.
Unsafe practices in our
construction activities
causing injury or death
to our stakeholders and
damage to communities.
A loss of trust in the
ability of Bovis Homes to
build homes safely and
in an environmentally
responsible way, affecting
the reputation and financial
health of the business.
Inability to adhere to
an increasingly stringent
Increased costs and
significant delays in
regulatory planning
production leading to
and technical
requirements affecting
the housing market.
There is a specific
risk in 2018 due to
a new regulatory
framework relating to
the management of
customer and employee
information.
reduced legal completions.
Reduced number of active
sales outlets due to delays
in planning process leads to
lower build and sales activity.
Business disruption, expense
and potential fines from a
failure to manage customer
and employee data in
accordance with legislation.
34 | Strategic report | Our business and strategy
Strategic report | Our business and strategy
Taking a
‘hands on’
approach
Driving greater operational
and commercial success
Water’s Edge, Fremington
Bovis Homes Group PLC | 35
Our corporate social responsibility (CSR) priorities
Introduction
This report provides an
update on our performance
during the year and further
information, including
relevant policies, can be
found on our website,
bovishomesgroup.co.uk.
Highlights
The majority of our staff have completed
customer service training with a view to
returning our customer satisfaction rating
to a 4 Star level. We have also held our
People
1
first Homebuyers’ Panel, chaired by our
Customer Experience Director.
The Group continued its commitment
to the nation through its own Armed
Forces Covenant. Bovis Homes is proud
to be a supporter of the Armed Forces
Covenant and is committed to ensuring
that our nation’s Forces personnel (past and
present), and their families, are treated with
respect and fairness. In recognition of this
commitment, Bovis Homes recently received
the Silver Award of the Defence Employer
Recognition Scheme. We continue to
expand our support in a number of ways,
most notably this year by offering work
attachments to serving armed forces
personnel, and supporting service charities
such as SSAFA and Help for Heroes.
Further details, including our commitments,
can be found on our website.
Our focus on engaging with our
subcontractors has begun to show
dividends, with daily activity briefings
now being operated across substantially
all of our sites. It is pleasing to note
that our health and safety performance
has improved with a reduction in the
Annual Injury Incidence Rate (AIIR) to 410
(2016: 620). This compares to the HSE
Construction AIIR of 397.
2017
performance
See page 38
Improve our customer satisfaction rating
Improve customer service training
Formation of homebuyers’ panel
Embed our core values across the Group and new joiners
Continue to develop our apprenticeship programme
Review ways to improve employee engagement
Health and safety
2
Reduce annual injury incidence rate
Improving leadership behaviours
Enhancing quality of workforce engagement
Increasing awareness of occupational health risk
Environment
3
Refine our waste reduction strategy
Reduce active waste per home
2017
performance
See page 42
2017
performance
See page 46
Reduce active waste sent to landfill
Set target for active waste per plot
Reduce our GHG emissions against our chosen intensity measures
Community
4
Continue to develop our strategic offering to assist with
affordable housing
Continue to build on our relationships and support our
subcontractors and suppliers
2017
performance
See page 50
Key:
Priority not met
Priority partially met /within range
Priority met
36 | Strategic report | Corporate social responsibility
Strategic report | Corporate social responsibility
Focusing
on our CSR
priorities
Supporting sustainability, our
people and communities
Bovis Homes Group PLC | 37
Bovis Homes Group PLC | 37
Our corporate social responsibility (CSR) priorities
1
People
KPIs
Staff turnover
Training days
Apprentices
Customer satisfaction rating*
2017 2016
31%
20%
3,914 2,892
20
29
2 star
3 star
*Based on HBF star rating announced in March of that year relating to the prior period of 1 October to 30 September.
Customers
Employees
During 2017, our focus has been on
The Group operates solely in the UK and
customer service, with the handover of
complies with all relevant legislation
high quality homes to customers a priority.
and regulations. The Group continues
We have seen a significant improvement in
customer satisfaction trend during the year
and made good progress in addressing all
of our legacy customer issues.
The vast majority of our staff completed
customer service training. New staff
complete the training shortly after joining
the Group.
We recruited a Customer Experience
Director who led the inaugural
Homebuyers’ Panel meeting during
the year. A further Homebuyers’ Panel
meeting was held in early 2018.
The Group’s HBF customer satisfaction
rating was 2 star (2016: 3 Star). Since the
start of the HBF year (1 October 2017), the
Group is trending at a 4 star HBF customer
satisfaction score.
The Homebuyers’ Panel is now established
with meetings having taken place in
September 2017 and January 2018.
The group consists of a cross section of
customers who are at various stages of
their journey with us. They continue to
provide valuable insight, feedback and
ideas on what we can do to continue to
improve the experience that we deliver for
our customers.
Representatives from our Commercial and
Technical teams attend the meetings to
ensure that this first-hand feedback can be
incorporated into homes at the build stage.
to apply its employment policies to not
discriminate between employees, or
potential employees, on the grounds of
gender, sexual orientation, age, colour,
creed, ethnic origin or religious belief.
Bovis Homes passionately believes in
equality and diversity for all. To that end,
we have an Equal Opportunity policy which
is rigorously enforced and promoted. In
addition, Bovis Homes has never been the
subject of litigation alleging discrimination.
It is also Group policy to give full and fair
consideration to the employment needs
of disabled persons (and persons who
become disabled whilst employed by
the Group) where requirements may be
adequately covered by these persons and
to comply with any current legislation with
regard to disabled persons. The Group’s
policies are supported by the Group’s
Dignity at Work policy which prohibits
bullying, harassment or victimisation.
The total employee turnover rate increased
to 44% (2016: 27%) which reflects the
number of redundancies made during
the year as part of the reshaping of the
business. Unplanned staff turnover was
31% (2016: 20%). A higher than usual
number of resignations was also seen
during the period of the restructure.
In addition, there continues to be
demand for skilled workers in the home
building industry. We have implemented a
number of initiatives in order to attract and
retain staff, including the introduction of a
new benefits portal “mybenefitstoolbox”
38 | Strategic report | Corporate social responsibility
which allows the majority of our
employees to see and amend their benefits
from any internet-enabled device.
During the year we also updated our staff
communications strategy with the roll-
out of a new People Forum, a monthly
employee engagement survey and the
launch of a refreshed intranet service,
Dug. The People Forum supplements
each regional business’ Employee Liaison
meetings and comprises of employee
representatives from each of our regional
businesses. It provides an opportunity
for employees to raise and discuss their
concerns and bring ideas for fostering
greater employee engagement to a Group-
wide forum. The new online employee
engagement survey provides a monthly
snapshot of staff satisfaction and a way
for employees to provide anonymous
comments or suggestions to managers
and the HR team. Despite the significant
changes that affected the Group in 2017,
the online surveys indicate a healthy level
of engagement.
The Bovis Homes Annual Awards
celebrate the talent and dedication of our
people across the country. The awards
recognise those individuals and teams that
particularly represent the Group’s values of
Integrity, Caring and Quality. We remain
committed to our valuable apprentice
scheme with the intake during 2017 lower
as we went through a major restructuring
within the Group.
Strategic report | Corporate social responsibility
Bovis Homes
Annual
Awards
Putting
the focus
on people
Supporting our staff to
deliver quality for customers
Bovis Homes Group PLC | 39
Our corporate social responsibility (CSR) priorities
As well as the Company induction that
In 2016, the Group adopted an Anti-
Director and employee profile
all new starters attend, the Group has
Slavery and Human Trafficking Policy in
updated its appraisal process to ensure
support of its efforts to combat modern
that its values of Integrity, Caring and
slavery. A statement in line with the
Quality are considered and discussed by
provisions of the Modern Slavery Act 2015
employees and their line managers.
is available on our website.
Whilst Bovis Homes does not formally
The Group continues to operate both a
recognise a Trade Union, it is supportive
defined benefit pension scheme and a
of its employees’ rights to freedom of
defined contribution pension scheme.
association including the right to form and
It also operates an auto-enrolment
join trade unions. Employees often bring
pension scheme. The Group has a Share
Trade Union members as representatives to
Incentive Plan, Save As You Earn share
The following table shows the gender split
within the Group as at 31 December 2017.
In common with the construction industry,
the majority of the workforce is male
at 64.5% (2016: 64%). While a lower
proportion of senior management and
directors are female, the Group encourages
and supports diversity, including gender.
As at 31 December 2017, there were
nine senior managers (all male) who were
directors of Group subsidiaries.
formal meetings and we value their input.
option scheme and a Long Term Incentive
We also elected employee representatives
Plan to motivate employees and encourage
Analysis by role and gender
and substitutes in 2017 and use this
strong involvement with the Group.
Role
Female Male
Total
group in relation to a remit of collective
consultation.
Bovis Homes supports the Minimum Wage
and ensures that all employees are paid in
Staff are kept informed of the Group’s
performance and matters of concern or
interest to employees via the Dug intranet
Non-executive directors
Executive directors
Senior managers
service, a news magazine and emails
Managers
excess of it. The Group has not been found
that are sent to all staff. Consultations
Site and sales staff
to have failed to pay the Minimum Wage
are held at staff meetings and personal
and remains an ardent supporter of it and
briefings are provided by elected
1
0
1
71
126
224
5
5
2
13
146
360
202
47
6
2
14
217
486
426
52
428
775 1,203
No. of
employees
53
204
273
301
288
84
1,203
%
4.4
17.0
22.7
25.0
23.9
7.0
100
Support staff
Apprentices
Total
Analysis by age
employee representatives. Each regional
business meets regularly with employee
representatives to discuss matters that
may impact staff. The Executive Leadership
Team provide presentations to staff at all
Age
regional offices at key points in the year.
As at 31 December 2017, the Group
directly employed 1,203 people
(2016: 1,253). In common with the
construction industry, the majority of our
site-based population is employed by
our subcontractors. During the year, our
average workforce population was 5,121
(2016: 5,161).
<21 years
21 – 30 years
31 – 40 years
41 – 50 years
51 – 60 years
>60 years
Total
its aims.
Bovis Homes complies with the principles
of the Construction Industry Joint Council
(CIJC) Handbooks even though it does not
formally recognise the same.
The Group believes that it has a key role
to play in ensuring that employees have an
appropriate work life balance. To that end,
we are committed to working towards
ensuring that no employees work excessive
hours. In addition, we seek to minimise
weekend and late night working to an
absolute minimum and then only when
it is essential. When it does occur, Bovis
Homes seeks to redress the balance by
giving people time off in lieu. Moreover,
the Group has introduced a process of
buying and selling holiday. Bovis Homes
also encourages flexible working which
allows employees to leave work early on
a Friday.
As part of the commitments we have
made for our Armed Forces Covenant,
we have also been exploring further
ways to support employees that are
active reservists.
40 | Strategic report | Corporate social responsibility
Strategic report | Corporate social responsibility
Training
We have continued our investment in
training during the year, spending £1.2m
(2016: £756,000) on employee training in
support of the Group’s policy to train and
develop employees to ensure that they
are equipped to undertake the functions
and tasks for which they are employed,
and to provide the opportunity for
career development equally and without
discrimination.
All new starters attend the centralised
company induction on their first day with
the company, delivered at the Bovis Homes
Training Centre, which opened in July
2017. They receive a welcome personally
from a member of the ELT followed by
subject matter experts providing key
information on subjects such as our values,
HR, H&S, learning and development and IT.
This is a major step forward in generating
a team ethos from day one and is
complemented by regional and functional
induction at the normal place of work
from day two.
Additional training is also arranged by our
All subcontractors are made aware of
regional businesses where they identify
our policies relating to anti-bribery and
specific needs.
Our Apprenticeship scheme has continued
to develop with 20 new apprentices joining
the Group during the year (2016: 29).
We signed the Home Building Skills
Pledge – an initiative to collaborate with
others tackling the industry skills gap
by supporting the Home Building Skills
Partnership and working to its shared
goals. We have embarked upon a training
offering to contractors as part of this
initiative by delivering SSSTS qualifications
at minimal cost to our specialist
contractors.
Human rights
The Group has not adopted a formal
corruption and encouraged to adopt their
own policies. Employees, subcontractors
and others are encouraged to use our
whistleblowing service to report any
suspicion of bribery or corruption. In 2017
10 whistleblowing reports were made
which included matters relating to bribery
and corruption.
All employees are subject to the Group’s
corporate hospitality policy. Details of
corporate hospitality are reviewed by the
Audit Committee on a regular basis.
Priorities for 2018
• Maintain current customer satisfaction
trend with a target of 4 star for the
2018 HBF Customer Satisfaction Survey.
human rights policy but will continue to
• Improve employee retention through
monitor whether this is an appropriate
improved rewards and benefits offering,
development for the organisation. At this
leadership training and employee
time it is considered that the Group has a
wellbeing initiatives, together with a
collective number of policies in place that
revised recruitment strategy to attract
support basic human rights as outlined in
talented individuals.
Training needs are identified against the
Group’s H&S core training matrix and
where there are role specific training
the Universal Declaration of Human Rights
for all individuals with which we interact
and a separate human rights policy is
requirements. Training needs are further
not necessary.
discussed with individual employees as part
of their probation and annual appraisal.
In addition to this, training needs can be
identified on other occasions, either by
senior directors as a result of a change
in business need, or as a result of an
individual changing position or being
promoted. The Group has an educational
sponsorship policy to support employee’s
personal development and will meet
course expenses, including allowing day
release, where appropriate.
Employees continue to receive regular
training covering topics such as health,
safety and environmental matters, IT,
management, sales and customer care.
A total of 3,914 training days were
delivered during the year via our
Group Learning & Development team
(2016: 2,892), equivalent to 3.1 days per
employee (2016: 2.3).
The Group recognises the importance of
this area and has adopted policies that
support the underlying principles.
In particular, we have appropriate policies
in place regarding employment matters
(including freedom of association and
diversity), health and safety, anti-slavery
and human trafficking, anti-bribery and
corruption and whistleblowing that are
there to protect fundamental rights.
Anti-corruption
and anti-bribery
The Group is committed to high ethical,
legal and moral standards and all members
of staff are expected to share this
commitment. The Group has adopted an
anti-bribery and corruption policy and has
procedures in place designed to prevent
bribery and corruption from taking place.
Bovis Homes Group PLC | 41
Our corporate social responsibility (CSR) priorities
2
Health and safety
KPIs
Annual injury incidence rate (AIIR)
RIDDORs
2017 2016
410
620
21
36
Our health and safety
(“H&S”) Steering Group
began an extensive
review of our H&S
processes with a new
inspection regime pilot
commenced during
the year.
A new internal inspection regime was
introduced during Autumn 2017 featuring
an overall H&S performance KPI which
has been set for all sites and also provides
a Gold – Green – Amber – Red – Black
dashboard indicator that is updated by the
regions daily. This approach replaces the
former NHBC monitoring method used to
generate performance KPIs. It has been
well received by site teams and is not
only seen as a fairer and more accurate
measure but also focusses on recognising
good practice. In turn this has increased
the level of engagement with both site
management teams and contractors and
is consistent with our strategy to bring
about behavioural change. Since this
was introduced a continuous level of
improvement has been observed over a
5 month period.
The review has seen active engagement
from our site managers which ensures
that operational feedback is included as
part of the review. Other initial changes
include the recruitment of additional
safety advisers to work with our regional
businesses in making Bovis Homes a safe
place to work.
In early 2017, we incorporated our
The Bovis Homes Safety Awards recognise
directors’ tours as part of a wider site
excellent performance in health and
review process and this has now been
safety at our sites. The judging took
successfully embedded into the business.
place in November 2017 with nine sites
The changes implemented have begun
to be evidenced through a significant
reduction in our annual injury incidence
rate to 410 in 2017 (2016: 620).
We have continued to actively promote
worker engagement at site level
through daily activity briefings (“DABs”).
These provide an opportunity for site
management to communicate with
subcontractors and those on site on tasks
winning Regional Excellence Awards.
Four sites were Highly Commended and
went through to compete for the Group
Excellence Award, with a further three sites
Commended.
The superb examples of health and safety
identified during the judging for the
awards has been shared with the regional
build directors for implementation across
the business.
scheduled to occur that day and particular
Alongside the Bovis Homes Safety Awards,
risks that may arise as a result. They also
the Group competed with other house
provide a forum for subcontractors to
builders in the National House Building
provide feedback and for near-misses to be
Council’s Pride in the Job Awards, where
discussed and improvements implemented.
four of our site managers were selected
Health and safety remains a number
one priority, with this topic being one
of the first to be covered at our new
starter induction.
The Group’s senior leaders also completed
Leading Safely training from the Institution
of Occupational Safety and Health and
a Leading Safety Differently workshop.
This is part of our drive to promote the
from more than 16,000 site managers
working across the country to receive
Quality Awards. Our team at Loachbrook
Meadow, led by Oliver Cookson, went on
to win the next level of award, the Seal of
Excellence and as regional winner in the
large builder category was shortlisted for
the Pride in the Job Supreme Award.
Priorities for 2018
integration of health and safety, and
• Update our standard operating
develop the right behaviours, at all levels
procedures to support a safety
of the business.
first culture.
We also took the step of providing
• Revise our site induction process to
defibrillators and relevant training to all of
ensure it remains engaging, including a
our sites. The defibrillators are not just for
trial of an electronic induction process.
use on site and can be used by those in
the vicinity if required.
42 | Strategic report | Corporate social responsibility
Strategic report | Corporate social responsibility
Committed
to health
and safety
Comprehensive health
and safety training for
all employees
Bovis Homes Group PLC | 43
Our corporate social responsibility (CSR) priorities
Case study
Oliver is
crowned
best in
the whole
North West
NHBC Seal of Excellence/Pride in the Job
“We’ve got great team at Loachbrook
as well as Oliver’s professionalism and
Meadow, who work conscientiously, want
dedication to the job.
Oliver Cookson
celebrated a huge
success at a major
house-building industry
awards ceremony.
He was named the best site manager in
the North West region in the National
House Building Council’s (NHBC) Pride in
to do the job well, and build homes that
we can all be proud of.”
Oliver went forward to the Supreme
Awards Gala - the national final - at the
Park Plaza Westminster Bridge Hotel in
London, along with the winners from the
other 10 UK regions.
the Job large builder category.
Oliver reached the regional stages of the
The accolade, presented at the Hilton
Manchester Deansgate Hotel, recognises
Oliver’s expertise in guiding the team
at Bovis Homes’ Loachbrook Meadow
location on the outskirts of Congleton.
Oliver, who lives in Middlewich, said:
“I’m absolutely thrilled to have won the
award - it’s going to take some time to
sink in - but I wouldn’t have achieved
competition after being selected from
more than 16,000 UK site managers for an
NHBC Pride in the Job ‘Quality’ award for
excellence in on-site management earlier
in the year.
He received a coveted ‘Seal of Excellence’
award at the Manchester event, before
then going forward to land the major
regional prize.
“We’re thrilled that he has won the
regional award.”
Now in its 37th year, Pride in the Job
celebrates the exceptional contribution
site managers make in creating homes of
outstanding quality.
The ‘large builder’ category is for site
managers employed by a company that
builds more than 1,000 new homes with
NHBC warranty cover per year.
Darrell White, managing director of the
West Division of Bovis Homes, added:
“This is a tremendous performance by
Oliver and his team at Mercia’s Loachbrook
Meadow, and a testament to his
absolute focus on health and safety, his
communication skills, and his passion for
anything without the fantastic team that
Joanne Morrison, Managing Director of the
delivering quality homes for customers.”
I’ve got on site.”
“But for their hard work, I wouldn’t have
been getting up on stage to collect this
award. I think we all bring the best out
Bovis Homes Mercia region, said: “We’re
extremely proud of the high-quality homes
that Oliver and his team are building at
Loachbrook Meadow.“
in each other and they respect me and I
The award recognises the great
respect them - it’s a two-way street.”
communication and teamwork on site
44 | Strategic report | Corporate social responsibility
Strategic report | Corporate social responsibility
Heyford Park, Upper Heyford
Bovis Homes Group PLC | 45
Our corporate social responsibility (CSR) priorities
3
Environment
KPIs
Recycling
Waste per plot
GHG emissions
2017 2016
94%
93%
5.72
6.10
2.01
1.61
This partnership has led to increased
Total waste per plot was 5.72 tonnes
accuracy in the recording of waste and
(2016: 6.10) based on completed plots and
its final treatment. We also changed the
work in progress. We are targeting waste
size of plasterboard sheeting specified
per plot of 5 tonnes for 2018.
for our homes in order to reduce
offcut wastage.
The Group continued to divert almost all
of its waste from landfill to other uses at
We have set a target to reduce waste
94%. Our recycling rate for site waste is
by 15% for the 12 months from August
outlined below:
The Group has adopted
an environment policy
and recognises its
responsibilities to
protect and enhance
the environment and to
minimise, so far as it is
safe, practicable and
economically sound, any
adverse environmental
impact of its activities.
The Group seeks to minimise its impact
on the environment through a number of
activities including reducing waste from
its activities, limiting as far as practicable
our greenhouse gas emissions, ecology
and sustainable water management and
The Group recognises that as a leading
national home builder it needs to minimise
its impact on the environment. We always
aim to operate efficiently, reducing waste
and minimising the energy and natural
resources we use.
During 2017 we launched a new waste
strategy in partnership with Reconomy
with the aim of reducing the overall
amount of waste sent to landfill and
improving our recycling volumes.
46 | Strategic report | Corporate social responsibility
2017, the date our partnership with
Reconomy was fully implemented.
Tonnes
Total waste diverted from landfill
Comprising: Timber
Plaster
Hazardous
Other
Plaster
Hazardous
Other
Total waste
Number of plots
*Only consolidated data available.
the maintenance or incorporation of open
Total waste to landfill
space in our developments.
Comprising: Timber
2017
2016*
21,167 21,337
1,985
1,522
1
17,659
1,375
1,606
0
0
2
1,373
22,542 22,943
3,645
3,997
We continue to research and develop more efficient build processes and modern methods
of construction which should reduce the amount of waste generated from our activities.
Strategic report | Corporate social responsibility
Looking
after the
environment
Aiming to take a sustainable
approach
Bovis Homes Group PLC | 47
Our corporate social responsibility (CSR) priorities
Case study A joined up approach to waste management
“All waste and recycling
waste skips and implementing a focused,
Directors, together with the production
services for Bovis Homes
group-wide policy of effective waste
of a waste tracker to monitor cost and
By moving away from the use of general
Regular review meetings with Build
are managed by its appointed partner,
segregation at source, the partnership
tonnes per completed plot, have
Reconomy – the UK’s leading provider of
achieved significant success in 2017.
enabled the swift identification of any
outsourced waste management services.
In the Mercia region alone, which was
corrective actions, thereby ensuring
Since first joining forces in 2009, the
the first to fully implement Reconomy’s
the delivery of Bovis Homes waste
two companies have formed a close
waste management strategy, waste
management KPIs. Regular reporting
working relationship, with an ongoing
costs per plot fell from a high of £824 in
and communication has also led to the
commitment to minimising waste
August 2017, to £468 by year end.
creation of a regional league table for
volumes, increasing recycling rates and
reducing waste sent to landfill.
These results have been attributed to
the phased and considered rollout of the
waste strategy across all Bovis Homes
waste performance, which has fuelled
internal competition and driven
further improvements.”
developments, thereby allowing for a
Tony Filson,
consistent and joined-up approach.
Reconomy
Greenhouse gas emissions
During the year, measures were operated
GHG emissions have been calculated using
We continue to recognise the importance
of climate change and minimise our impact
on the environment.
to collect emissions data from our
emission factors from UK Government’s
construction sites. Where this data was
GHG Conversion Factors for Company
incomplete at the year end, we have
Reporting 2017. Scope 1 emissions arise
extrapolated total emissions by using (i) an
from the consumption of gas at our
Our impact on climate change also means
averaging approach to extend data to a
facilities, diesel on construction sites and
that careful thought is given to the homes
full year for sites with part-year data, and
UK business mileage in fleet cars. Emissions
that we build. Our preference is for a
(ii) applied an average calculated from all
from air conditioning in offices have been
fabric first approach to ensure that the
sites to sites returning inadequate data.
excluded as not being material. Scope 2
heating of space, which has the greatest
The calculations allow for sites which
emissions represent purchased electricity.
impact on a home’s energy efficiency,
opened and closed during the year.
Scope 3 emissions represent business
is mitigated as far as possible within the
actual construction of homes.
We continue to review green energy
provision on our developments, including
the use of photovoltaic roof tiles in place
of traditional panels.
We have revised our company car policy
to limit CO2 emissions on all new vehicles
to 120 g/km. We also renewed our forklift
truck fleet and specified machines no
more than 2 years old, to ensure
improved efficency.
Performance and
methodology
mileage completed in private vehicles.
Greenhouse gas (GHG) emissions data for the period 1 January 2017 to
31 December 2017 (with prior year comparatives)
Emissions from:
2017
2016
2015
Unit
Combustion of fuel at our facilities and construction sites
as well as fleet vehicle use (Scope 1 emissions)
5,638
4,780
4,168
Purchased electricity (Scope 2 emissions)
1,522
1,627
1,324
Total GHG emissions (Scope 1 and Scope 2)
7,160
6,406
5,492
Scope 3 emissions (private vehicle mileage)
786
677
424
Company’s chosen intensity measurements:
(i) Total GHG emissions per legally completed unit (1)
2.17
1.77
1.49
*
*
*
*
**
†
GHG emissions have been reported from
(ii) Total GHG emissions per 1,000 sq ft legally completed
2.01
1.69
1.46
all sources required under the Companies
Act 2006 (Strategic Report and Directors’
Report) Regulations 2013. These sources
fall within the Group’s operational control.
The Group does not have responsibility
for any emission sources that are not
included in the consolidated financial
statements and are outside the boundary
of operational control.
*Tonnes of CO2e. ** Tonnes of CO2e per legally completed unit. † Tonnes of CO2e per
1,000 sq ft legally completed. (1) re stated to include scope 3 emissions.
There has been increase in GHG emissions against our chosen intensity measures as a
result of an increase in fleet vehicle use and more accurate fuel usage by forklift trucks via
a telematics system.
Priorities for 2017
• Reduce our GHG emissions against our chosen intensity measures.
• Reduce waste to 5 tonnes per plot.
48 | Strategic report | Corporate social responsibility
Strategic report | Corporate social responsibility
Open space, ecology and sustainable water management
Our developments are about more than
whether a site is likely to contain
required to limit surface water discharge
just homes and the incorporation of open
archaeological remains and any mitigating
and any potential for localised flooding.
space and communal areas is considered at
actions that may be required.
This involves active consultation with the
an early stage.
We work closely with local authorities to
All of our sites are subject to extensive
retain and protect trees wherever possible
pre-construction assessments. Our ecology
and provide mature environments for
assessments include an evaluation of
local wildlife populations. Where trees
the suitability of habitats for protected
are removed, we aim to provide a net
species and proposals to mitigate the
improvement to the number of habitats,
impact of our developments more
through planting and the inclusion of bird
Environment Agency and water authorities
to ensure that there is, as a minimum, no
impact from our development on local
flood conditions. Our approach is not
to acquire sites on flood plains and to
incorporate sustainable drainage systems
where appropriate for the development.
generally. Mitigating measures can include
and bat boxes and other wildlife habitats.
We specify Forestry Stewardship Council
translocating species and creating wildlife
corridors. An archaeological assessment
will also be undertaken to determine
All sites are reviewed at acquisition stage
to determine the likely ground conditions
and the type of surface water measures
(FSC) or PEFC certified timber is used for all
of our developments.
Case study
Playtime is
now a reality
for Hemel
Hempstead
pupils
Hertfordshire Council, along with many
talented Osborne people has made this
Volunteers from Bovis Homes,
Osborne and the local council got
together to deliver the play park for the
local children.
National house builder Bovis Homes
and Osborne teamed up with their
supply chain partners and the local
community to build a playpark for a
primary school in Hemel Hempstead.
Two Waters Primary School is close to
the site of Bovis Homes’ new 325-home
redevelopment of the Manor Estate in
Apsley where Osborne’s expert engineers
have built a bridge over the busy
railway line.
The opening of the Two Waters Primary
playpark into a reality for the children.”
play area took place in April 2017,
with many attending, including local
dignitaries, parents, teaching staff and of
course the children. The official ribbon
was jointly cut by Jon Millar at Osborne,
Reception Teacher Bethany Ward and
Mayor of Dacorum Robert McClean.
Chris O’Connor, Regional Technical
Director at Bovis Homes said: “We’re
delighted to be part of this work and
it is the result of a truly collaborative
project between Osborne, our supply
chain partners, the local community and
ourselves. We look forward to seeing
Jon Millar, Osborne Project Manager for
the children take full advantage of these
the site said: “I am really pleased that
new facilities as we continue our work
collaboration with Bovis Homes and
bringing new homes to the community.”
Bovis Homes Group PLC | 49
Our corporate social responsibility (CSR) priorities
4
Community
KPIs
Affordable housing completions
Planning obligations spend
2017
2016
1,072
1,074
£26.4m
n/a
The Group has a CSR
policy which supports
the creation of sustainable
developments that are
designed for social
inclusion.
We recognise that we have a fundamental
role in tackling the country’s housing
During the year we continued to build on
other initiatives including fundraising
our affordable housing offering by working
for the SSAFA Big Brew Up event and
with RPs and government agencies to
sponsoring the RAF Police Rugby team.
offer a range of different tenures providing
solutions that meet the affordable housing
needs of our partners and the communities
in which we work.
It has also continued its policy of helping
ex-servicemen and women find new
roles in the Company through the
Career Transition Partnership (CTP), and
We offer Help to Buy and our own
supporting staff members who choose to
Trinity Discount Scheme for Armed
be members of the Reserve forces.
Forces personnel as part of our Armed
supply challenge and work with registered
Forces Covenant.
Many military homebuyers like the Ferrier
family at Sherford (right) have already
providers to provide affordable housing
across a range of different tenure types.
We also offer the Government’s Help to
Buy Scheme on all of our developments.
We have been working with a number
taken advantage of the unique forces
of providers to develop a bespoke
purchase assistance scheme, which has
specification for the homes we deliver to
now been available for almost a year and
RPs in response to the growing demands
is open to serving forces personnel, both
As part of each development we create
they are under.
we commit to provide resources and
improvements to the local area in
agreement with the local authority.
We work with our supply chain to ensure
that they are appropriately resourced
and have the relevant skills and, prior to
Of our 3,645 homes (2016: 3,977)
completed in 2017, 1,072 were sold to
RPs, representing 29% of the homes we
sold (2016: 1,074 and 27%).
Armed forces covenant
appointment, conduct due diligence on
Bovis Homes is proud to be a supporter
suppliers and subcontractors.
of the Armed Forces Covenant and is
regular and reservists. It allows service
personnel to combine buyer assistance
schemes with a package of offers from
the Company, in order to purchase their
own Bovis Home as simply and affordably
as possible.
Supply chain
We continue to work with our supply chain
to ensure timely delivery of our homes
in an environmentally and socially aware
way. Our suppliers and subcontractors
are involved at an early stage in site
development to ensure adequate resource
planning is in place and health and safety
remains a number one priority.
committed to ensuring that our nation’s
Forces personnel (past and present),
and their families, are treated with
respect and fairness. A copy of our
specific commitments can be found
on our website. In recognition of this
commitment, Bovis Homes recently
received the Silver Award of the Defence
The use of local and regional suppliers
Employer Recognition Scheme.
means that our developments provide
In the last 12 months, Bovis Homes has
taken part in a variety of events aimed
at equipping Forces personnel for civilian
life, such as a Life Skills fair at Tidworth
Garrison, and has supported a number of
benefits for the wider community,
through job creation and opportunities
for other local businesses to support
the development.
We provide assistance and sponsorship
to local good causes and support our
employees in raising money for charities
that are important to them.
Affordable housing
Working collaboratively with our public
sector partners is central to the way we
operate and we are proud to be playing a
key role in tackling the country’s housing
supply challenge. We work with local
authorities and registered providers (RPs) to
ensure the provision of affordable housing
on the majority of our developments in a
way that meets local needs.
50 | Strategic report | Corporate social responsibility
Strategic report | Corporate social responsibility
Creating
communities
Supporting our customers on
their new home adventure
Bovis Homes Group PLC | 51
Our corporate social responsibility (CSR) priorities
We collaborate with our supply chain on
the development of skills for the industry,
with our apprenticeship programme
incorporating secondments to learn key
construction skills.
We offer work experience placements to
those attending school and college.
We work with our suppliers to provide
innovative designs and products as well
as providing training on topics such as
Community and infrastructure
improvements
All of our developments are subject to
extensive public consultation prior to work
commencing, which identifies the needs
of local communities and provisions such
as affordable housing, open space and
educational needs.
During the planning phase for our
developments, we always seek to
Charity
The Group continues to support fundraising
events and local sponsorship opportunities
that are important for our staff. Staff have
been involved in activities and supporting
local good causes. We have continued to
make facilities available to staff, with local
fundraising days. Charitable donations and
sponsorship are managed by each regional
business to ensure that local causes and
charities important to staff are given priority.
health and safety and site supervisor safety.
incorporate leisure and amenity areas
During the year our contractors were able
to participate in a site supervisor safety
training scheme course accredited by
the Construction Industry Training Board
together with integrating developments
into local public transport infrastructure.
Where appropriate, local resident travel
In order to support our staff, during 2017
we introduced a payroll giving initiative to
enable employees to contribute to their
vouchers may be provided to encourage use
chosen charities directly from their salary.
(“CITB”).
of public transport.
In return for our commitment, our suppliers
Our larger developments will often include
must meet our anti-bribery and ethical
conduct standards. A whistleblowing
procedure is in place to support our
contractors and their staff.
Case study
provision of a local school, which will also
benefit the local community.
All of our sites have defibrillators installed
and staff are trained how to use them.
These can be called upon by local
communities and we have also taken the
step to ensure that these defibrillators
remain within the local area once our
developments have been completed.
Priorities for 2018
• Continue to develop our strategic offering
to assist with affordable housing.
• Continue to build on our relationships
and support our subcontractors and
suppliers trough regular meetings and
training opportunities.
Bovis Homes announces plans to present
local communities with life-saving defibrillators
Life-saving equipment will be donated
to towns and villages by Bovis Homes,
as part of our ongoing commitment
to health and safety, and to the
communities in which we work.
We have announced that the portable,
easy-to-use defibrillators currently
installed at our locations will be
offered to local communities after the
developments have been completed.
Bovis Homes will have employees based
at developments who have received
training in the use of the defibrillators.
Roger Morton, Head of Talent at Bovis
Homes, explained: “Every second counts
when someone suffers a sudden cardiac
arrest and, without immediate help,
between 90 and 95 per cent of cases
prove fatal.
52 | Strategic report | Corporate social responsibility
“But research suggests that survival rates
electric shock to the heart aimed at
improve significantly if a defibrillator is
restoring its natural rhythm, save lives.
used within five minutes of a cardiac
arrest - from 6 per cent to 74 per cent.
One of his closest friends suffered a
cardiac arrest while playing football, but
“Defibrillators are available for use at all
a team of paramedics were playing on
our locations during the lifetime of our
an adjoining pitch and one of the players
build and sales presence.”
had a defibrillator in his car.
Bovis Homes Site Manager Dave White
Dave said: “My friend wouldn’t be here
(above) has personal experience of how
today but for a defibrillator, so it’s vitally
defibrillators, which deliver a controlled
important that everyone has easy access
to them.”
Strategic report | Corporate social responsibility
Case study
Bovis Homes
donated
£300 to the
playgroup
Green-fingered playgroup ready
for the winter thanks to Bovis Homes
Come rain or shine, children at a
“It’s a fantastic community resource, and
It’s great to have all the tools there waiting
Moreton-in-Marsh playgroup will
the allotment gives children a chance to
for the children when they arrive.
now be able to tend to their
get outside and learn more about where
allotment thanks to a donation
food comes from and how plants grow.
from Bovis Homes.
“The kids love using the allotment and
learning where vegetables come from and
“We’re delighted to have been given the
we use the produce as healthy snacks!”
The children’s allotment now has a new
opportunity to contribute to their gardening
shed to house its tools and gardening
efforts and we hope their new shed helps
equipment, after Bovis Homes donated
them to have a bumper harvest!”
£300 to the community group.
Jo Creek, Deputy Playgroup Manager, said:
“We were only too happy to provide
“The shed has made a huge difference to
some help for the Moreton-in-Marsh
the group, as it is a bit of a walk from the
playgroup,” says Stephanie Spry,
nursery to the allotment.
Regional Marketing Manager.
Three-year-old Molly, who attends the
playgroup, said: “My favourite thing about
the allotment is the runner beans!”
Strategic report approval
The strategic report outlined on pages 2 to 57, incorporates the financial highlights, the Chairman’s statement, the strategic review, the
Chief Executive’s report, the financial review, the risks and uncertainties review and corporate social responsibility review.
By Order of the Board
Earl Sibley, Finance Director
1 March 2018
Bovis Homes Group PLC | 53
Winchester Park, Winchester
54 | Strategic report | Corporate social responsibility
Strategic report | Corporate social responsibility
Focused
on getting
it right
Committed to being the
best we can be
Bovis Homes Group PLC | 55
Financial review | Earl Sibley
will be released through cost of sales as we
legally complete homes. This is a change
in accounting policy and the Group’s
income statement has been restated for this
change. See note 2 ‘Result for the year’ for
further details
Total gross profit was £184.6m (gross
margin: 18.0%), compared with £209.0m
(gross margin: 19.8%) in 2016. Housing
gross margin was 18.3% in 2017, below
the 19.6% achieved in 2016 but broadly in
line with the housing gross margin delivered
in H2 2016 (18.4%) with profitability
impacted by a high level of build costs
within our cost base coming into the year,
actions taken to reduce stock and part
exchange holdings, land write downs on
out of area developments and an increased
level of investment across the business in
the period to address legacy issues.
During 2017, our construction costs
increased by 9% per square foot, reflecting
higher value site locations and the
inflationary impact of labour and materials
of around 4%, as we delivered production
in a more controlled manner.
The profit on land sales in 2017 was £2.4m
(2016: £7.7m) as we continue the strategy
of managing our capital base through the
disposal of parcels of land on several of our
larger sites although these disposals will not
impact our delivery in the next 2 to 3 years.
The Group delivered a pre-exceptional
operating profit for the year ended
31 December 2017 of £128.0m
(2016: £160.0m) at an operating profit
margin of 12.5% (2016: 15.2%).
Overheads increased by 16% in 2017
to £56.6m (2016: £49.0m). This level of
administrative costs reflects the heavy
structure existing in the business at the
beginning of the year which was planned
to deliver growth as well as additional
investment to reset the business and
deliver operational improvements for
future periods.
During the year the business has been
restructured reducing from eight operating
regions to seven as well as outsourcing
certain activities, the benefit of which will
be seen in future periods.
The Group incurred one-off costs of
£10.3m in the period made up of the
additional £3.5m customer care provision
taken at the half year (2016: £7.0m) as well
as £6.8m of exceptional costs, split between
£4.0m relating to the strategic restructuring
of the business and advisory fees of £2.8m
related to bid approaches in the first half.
Profit before tax reduced to £114.0m,
comprising operating profit of £128.0m,
exceptional costs of £6.8m, net financing
charges of £7.2m with no profit from
joint ventures in the year. This compares
to £154.7m of profit before tax in 2016,
which comprised £160.0m of operating
profit, £5.6m of net financing charges and
a profit from joint ventures of £0.3m.
Financing and taxation
Net financing charges during 2017 were
£7.2m (2016: £5.6m). Net bank charges
were £3.0m (2016: £3.3m), because of
modestly lower net debt during 2017 than
2016 offset by a higher level of commitment
fees and issue costs amortised in 2017.
We incurred a £5.1m finance charge
(2016: £5.0m charge), reflecting the
imputed interest on land bought on
deferred terms. The Group had a reduced
finance credit of £1.1m (2016: £2.4m)
arising from the unwinding of the discount
on its available for sale financial assets
during 2017 as the portfolio was sold during
the year. There were also other expenses of
£0.2m (2016: income of £0.3m).
The Group has recognised a tax charge of
£22.7m at an effective tax rate of 19.9%
(2016: tax charge of £33.9m at an effective
rate of 21.9%). The reduced tax rate is
driven by the reduced level of corporation
tax to 19%. The Group has a current tax
liability of £16.9m in its balance sheet as at
31 December 2017 (2016: £13.9m).
Earnings per share
and dividends
Basic earnings per share for the year
were 68.0p compared to 90.1p in 2016.
This has resulted in a return on equity of
10% (2016: 13%).
As previously communicated the Board will
propose a 2017 final dividend of 32.5p
per share. This dividend will be paid on 25
May 2018 to holders of ordinary shares
on the register at the close of business on
3 April 2018. The dividend reinvestment
plan gives shareholders the opportunity to
reinvest their dividends in ordinary shares.
Combined with the interim dividend paid
of 15.0p, the dividend for the full year
totals 47.5p and compares to a total of
45.0p for 2016, an increase of 6%.
Trading performance
In line with our planned slow
down in production and
initiatives implemented to
re-set the business during the
year, the Group delivered
3,645 legal completions,
a decrease of 8% on the
previous year (2016: 3,977).
The completions included 1,072
affordable homes representing 29%
of our completions (2016: 27%).
This generated total revenue of
£1,028.2m, a decrease of 3% on the
previous year (2016: £1,054.8m).
Housing revenue was £992.9m, only 3%
behind the prior year (2016: £1,022.8m)
with our average sales price increasing
by 7% to £272,400 (2016: £254,900).
Other revenue was £3.3m (2016: £6.2m)
and land sales revenue, associated with
five land sales, was £32.0m in 2017,
compared to three land sales achieved in
2016 with a total revenue of £25.8m.
As part of our strategic review the Group
has reviewed how all development
related activities are delivered to the
business. This has resulted in certain
services being outsourced to ensure best
value is delivered to our developments
throughout the housing cycle. In line with
this review all project specific sales costs
which were previously included in the
Group’s administrative expenses have been
reclassified within cost of sales.
Certain other technical, legal and build
related project costs, previously included in
the Group’s administrative expenses, have
been capitalised into work in progress and
56 | Strategic report | Our financial performance
Net assets and cash flow
As at 31 December 2017 net assets of
£1,056.6m were £40.6m higher than at
the start of the year. Net assets per share
as at 31 December 2017 were 787p
(2016: 757p).
Inventories decreased during the year
by £127.2m to £1,322.0m. The value of
residential land, the key component of
inventories, decreased by £107.2m, as
we reduced our land investment in
line with our medium term strategy.
Other movements in inventories included
an increase in work in progress of £8.9m
driven by a higher infrastructure investment
across several of our key sites including
Wellingborough, offset by a reduction in
the underlying level of ongoing production
and a decrease in part exchange properties
of £28.9m.
Trade and other receivables decreased by
£13.2m, including a reduced level of land
sales debtors. Trade and other payables
totalled £478.2m (2016: £582.8m).
Land creditors decreased to £246.7m
(2016: £343.3m) with reduced land
investment during the year and the
settlement of existing creditors. Trade and
other creditors decreased to £231.5m
(2016: £239.5m), driven by a reduction
in build activity resulting in lower
amounts outstanding to our supply chain.
Deferred income decreased in the year to
£16.5m (2016: £20.4m) while payments on
account in relation to affordable housing
increased to £41.4m (2016: £13.8m)
reflecting the increased level of cash
received on these contracts during the year.
As at 31 December 2017 the Group’s
net cash balance was £144.9m.
Having started the year with net cash
of £38.6m, the Group generated an
operating cash inflow before land
expenditure of £350.6m (2016: £307.5m),
driven by the increased affordable housing
cash received and a significant reduction
in our Help to Buy debtor at the end of
the year to £1.5m (2016: £13.0m).
In addition to this, further cash was
generated through the sale of several of
our fixed assets including offices for £8.4m
(£1.6m profit) and other assets including
cabins and forklifts for £5.7m (£2.5m
profit), while the disposal of the shared
equity portfolio generated net proceeds
of £28.8m.
Strategic report | Our financial performance
As previously highlighted net cash payments
for land investment were reduced at
£188.9m (2016: £205.6m). Non-trading cash
outflow, excluding the fixed asset and shared
equity disposals, reduced to £55.4m (2016:
£93.3m) with greater dividends offset by
lower corporation tax payments.
Cash flow
Net cash at 1 January
Profit in the year
Dividends and taxes paid
Decrease in property, plant and equipment
Decrease in net land
Decrease/(Increase) in part exchange properties
Disposal of available for sale financial assets
Other
Net cash at 31 December
2017
£m
38.6
91.3
(79.5)
9.3
10.6
28.9
27.8
18.1
144.9
2016
£m
30.0
120.8
(88.6)
2.1
13.5
(19.1)
7.5
(27.6)
38.6
We have a committed revolving credit facility of £250m in place which was extended for
one year during early 2018 and now expires in December 2022.
Land bank
Consented plots added
Sites added
Sites owned at period end
2017
2,550
11
117
2016
3,047
27
133
Plots in consented land bank at period end
17,096
18,704
Average consented land plot ASP
£293,000
£271,000
Average consented land plot cost
£53,300
£52,400
The Group’s consented land bank of 17,096
The average selling price of all units within
plots as at 31 December 2017 represents
the consented land bank increased over
4.7 years of supply based on the 2017
the year to £293,000, 8% higher than
completions volume. The reduction in plots
the £271,000 at 31 December 2016.
year on year reflects our strategy to deliver
The estimated embedded gross margin
c.4,000 completions per annum from
in the consented land bank as at 31
2019 onwards and maintain an optimal
December 2017, based on prevailing sales
land bank at 3.5 to 4.0 times. The 3,645
prices and build costs is 23.2%.
plots that legally completed in the year
were in part replaced by a combination
of site acquisitions and conversions from
our strategic land pipeline. Based on our
appraisal at the time of acquisition, the new
additions are expected to deliver a future
gross margin over 26% and a ROCE in
excess of 25%.
Strategic land continues to be an
important source of supply and during
the year 1,850 plots have been converted
from the strategic land pipeline into the
consented land bank.
Earl Sibley
Finance Director
Bovis Homes Group PLC | 57
Directors and officers
1 Ian Tyler
2 Alastair Lyons
3 Ralph Findlay
4 Chris Browne
5 Nigel Keen
6 Mike Stansfield
7 Greg Fitzgerald
ELT
8 Earl Sibley
ELT
9 Martin Palmer
ELT
Board skillset
(Number of directors)
Board skillset
(Number of directors)
Construction and property
Construction and property
3
2
3
7
2
7
5
5
Retail
Retail
Financial
Financial
4
4
Strategy and business development
Strategy and business development
10 James Watson
6
4
4
6
ELT
11 Darrell White
ELT
12 Keith Carnegie
ELT
Health and safety and regulation
Health and safety and regulation
People and culture
People and culture
1 Ian Tyler (57)
Non-executive Chairman
Committee membership: Nomination Committee
Date appointed: 29 November 2013
Experience: Ian was Chief Executive of Balfour Beatty
plc from 2005 to March 2013, having joined the
company in 1996 as Finance Director and becoming
Chief Operating Officer in 2002. He is a Chartered
Accountant and prior to 1996 was Financial Comptroller
of Hanson and Finance Director of ARC Ltd, one of
its principal subsidiaries, and held financial roles at
Storehouse plc. He was a non-executive director of
Mediclinic International plc until February 2017 and
Cable & Wireless Communications Plc until September
2015, where he was also chairman of its audit
committee, and a non-executive director of VT Group
plc until 2010.
Skills: Board leadership and debate, construction
health and safety matters, familiarity with dealing with
international shareholders, business growth and
value creation.
External directorships: Listed: BAE Systems plc, Cairn
Energy PLC. Non-listed: Amey PLC, a subsidiary of
Ferrovial S.A., AWE Management Ltd (a joint venture
company between Lockheed Martin, Jacobs Engineering
and Serco).
2 Alastair Lyons CBE (64)
Independent, Non-executive Deputy Chairman and
Senior Independent Director
Committee membership: Chairman of the
Remuneration Committee, member of the Nomination
and Audit Committees
Date appointed: 01 October 2008
Experience: Alastair has been non-executive chairman
of Welsh Water since July 2016. He was non-executive
chairman of Admiral Group plc from June 2000 until
April 2017. Previously in his executive career, Alastair
was Chief Executive of the National Provident Institution
and the National and Provincial Building Society,
Managing Director of the Insurance Division of Abbey
National plc and Director of Corporate Projects at
National Westminster Bank plc. He has a broad base of
business experience with a particular focus on mortgage
lending and insurance industries. He was awarded the
CBE in 2001 for services to social security having served
as a non-executive director of the Department for Work
and Pensions and the Department of Social Security.
Skills: Broad commercial and detailed mortgage lending
and insurance industry experience.
External directorships: Non-listed: Non-executive
chairman of Welsh Water.
8
8
Public sector
Public sector
Environment and sustainability
Environment and sustainability
Tenure
(Number of directors)
Tenure
(Number of directors)
Diversity
(Number of directors)
Diversity
(Number of directors)
Board skillset
(Number of directors)
2
2
3
3
1
1
3
2
7
5
6
Construction and property
Retail
Financial
4
Strategy and business development
People and culture
4
Health and safety and regulation
ELT
Executive Leadership Team
3
3
7
7
8
Public sector
0-2 years
0-2 years
2-4 years
2-4 years
Male
5+ years
5+ years
Male
Female
Female
Environment and sustainability
Company secretary
Tenure
(Number of directors)
2
3
Diversity
(Number of directors)
1
58 | Our governance | Directors and officers
3
7
0-2 years
2-4 years
Male
Female
5+ years
Our governance
3 Ralph Findlay (57)
Independent, Non-executive Director
6 Mike Stansfield (61)
Non-executive Director
9 Martin Palmer (59)
FCIS, Group Company Secretary
Committee membership: Chairman of the Audit
Committee and member of the Nomination and
Remuneration Committees
Date appointed: 07 April 2015
Experience: Ralph is a Chartered Accountant and is
Chief Executive Officer of Marston’s PLC, a position
he has held since 2001, having been Finance
Director from 1996 to 2001 and Group Financial
Controller from 1994 to 1996. He previously held
roles with Geest plc as Group Chief Accountant,
Bass plc as Treasury Manager and qualified and
worked with Price Waterhouse as a specialist in
financial services
Skills: Commercial, financial and general
management experience in a consumer
facing industry. Land acquisition and business
growth experience
External directorships: Listed: Chief Executive
of Marston’s PLC. Non-listed: Pro-Chancellor and
Chair of Council of Keele University
4 Chris Browne OBE (57)
Independent, Non-executive Director
Committee membership: Nomination,
Remuneration and Audit Committees
Date appointed: 01 September 2014
Experience: Chris is Chief Operating Officer of
easyJet plc, where she served as a non-executive
director from January to September 2016. She was
Chief Operating Officer, Aviation, of TUI Travel plc
until September 2015 and was managing director
of Thomson Airways from 2007 to May 2014 and
managing director First Choice Airways from 2002
to 2007. She has a Doctorate of Science (Honorary)
for Leadership in Management and was awarded an
OBE in 2013 for services to aviation.
Skills: Commercial and general management
experience in a consumer facing and highly
regulated industry, plus leadership and
operational skills.
External directorships: Non-listed: easyJet Airline
Company Limited.
5 Nigel Keen (56)
Independent, Non-executive Director
Committee membership: Nomination,
Remuneration and Audit Committees
Date appointed: 15 November 2016
Experience: Nigel was Property and Development
Director of the John Lewis Partnership until January
2018, where he was responsible for the property
strategy and portfolio across both John Lewis and
Waitrose, including stores, supermarkets, distribution
centres and manufacturing sites. He joined the John
Lewis Partnership in 1999, having previously held
roles with Tesco plc from 1989 to 1999, including
as Construction Director, and with John Evers &
Partners from 1985 to 1989, having trained as a
Quantity Surveyor.
Skills: Property, construction and customer
experience in a consumer facing industry.
Property strategy, land acquisition and development.
External directorships: Non-listed: Non-executive
director of RG Carter Construction, Trustee of
Sported Foundation and Trustee of Maudsley
mental health charity.
Committee membership: Nomination,
Remuneration and Audit Committees
Committee membership: Secretary to the Board
and Board committees
Date appointed: 28 November 2017
Date appointed: 01 December 2001
Experience: Mike Stansfield is non-executive
Chairman of Braidwater Limited and Campion
Homes Limited, the private equity backed residential
development companies. During his executive career
he was Chief Executive of David Wilson Homes from
1997 until 2005, having been appointed a director
of Wilson Bowden plc in 1994 and holding positions
with David Wilson Homes, including Divisional
Chairman and Managing Director. He was also
Chairman of WBD City Homes Limited from 2003
to 2005, a board member of the Housing Forum
from 2002 to 2011, and a non-executive director of
NHBC Building Services from 2005 to 2014.
Skills: House building and residential construction
industry, strategy and business development.
External directorships: Non-listed: Non-executive
chairman of Braidwater Limited and Campion
Homes Limited.
7 Greg Fitzgerald (53)
Chief Executive
Committee membership: None
Date appointed: 18 April 2017
Experience: Greg was Chief Executive of Galliford
Try Plc from 2005 to 2015, having previously been
Managing Director of its house building division
from 2003. Prior to this he was a founder and
later Managing Director of Midas Homes, which
was acquired by Galliford Try Plc in 1997. As Chief
Executive, he transformed Galliford Try Plc from
a building contractor into a well-respected house
building and construction business, which included
the acquisition of Linden Homes in 2007. Greg was
Executive Chairman of Galliford Try Plc during 2015
before becoming non-executive Chairman from
January to November 2016. He was a non-executive
Director of the National House Building Council from
2010 until July 2016.
Skills: Leadership and strategic focus in house
building and construction industry, business growth
and value creation.
External directorships: Non-listed: Non-executive
Chairman of Ardent Hire Solutions Limited and
Baker Estates Limited.
8 Earl Sibley (45)
BA (Hons) ACA, Group Finance Director
Committee membership: None
Date appointed: 16 April 2015
Experience: Earl is a chartered accountant and
rejoined Bovis Homes as Group Finance Director
in April 2015 having worked as Group Financial
Controller from 2006 to 2008. Earl served as Interim
Chief Executive from January to April 2017. He held
a number of senior finance and operational positions
with Barratt Developments plc from 2008 to 2015,
including Regional Finance Director and previously
worked for Ernst & Young.
Skills: Leadership, strategic focus, financial and
accounting expertise.
External directorships: None
Experience: Martin is a Fellow of the Institute of
Chartered Secretaries and Administrators. He has
sixteen years of experience with Bovis Homes and
was previously Group Company Secretary of London
Forfaiting Company PLC from 1997 to 2001.
Skills: Governance, regulation and compliance
External directorships: None
10 James Watson (45)
Division Managing Director – East Division
Experience: James joined Bovis Homes in 2016
and is a member of the Royal Institute of Chartered
Surveyors. Previously he held a number of divisional
managing director roles firstly with Barratt
Developments PLC and latterly with Persimmon PLC
throughout the UK.
11 Darrell White (46)
Division Managing Director – West Division
Experience: Darrell joined Bovis Homes in 1995 as
a surveyor. He has held a number of roles and was
promoted to Division Managing Director in 2015
having been Regional Managing Director for the
Northern region and Operations Director for
Central region.
12 Keith Carnegie (48)
Executive Director – Bovis Homes Limited
Experience: Keith is a qualified solicitor (non-
practising) and joined Bovis Homes in 1999 as a
Regional Legal Director, having been a partner in
private practice. He has held a number of senior
roles within the Group, including Regional
Managing Director, Division Chairman and Chief
Operating Officer.
Bovis Homes Group PLC | 59
Corporate governance report
2017 was a year of challenge and change for the Group.
We responded well to the elevated level of customer
complaints and concerns arising from the difficult end to
2016 and have since achieved significant improvement in
the delivery of the service our customers expect.
Our people, subcontractors and suppliers have worked
tirelessly to bring about the operational change essential to
the future success of the Group, as the business resets
in line with the operational priorities established early
in the year.
Ian Tyler
Chairman
Our new Chief Executive, Greg Fitzgerald,
The Board has ultimate responsibility for
2017, and was coupled with a review
has brought clarity to our strategic thinking
the success of the Company and my task
of events leading up to the operational
and direction and, with his extensive
focuses on ensuring that it provides strong
difficulties of 2016. This has allowed the
housebuilding experience, provided a
strategic leadership, monitors the delivery
Board to form a view of performance over
driven “hands on” operational focus,
of strategic priorities and objectives and
an extended period. Actions were already
regularly visiting development sites.
rises to challenges along the way, whilst
underway in a number of areas and, whilst
Reducing the rate of production and
having an eye on the principal risks. In
many aspects of the Board’s performance
investing in the business for the future has
doing so, the Board must uphold the
have moved forward, the in-depth
had the expected impact on profitability
highest standards of integrity and promote
independent evaluation allowed the
and returns in 2017, but has placed
effective relationships, communication,
actions to be refined and supplemented.
us in a much stronger position, with
openness and accountability in the
More structured succession planning and
improved production processes and greater
boardroom, throughout the business and
the development of a formal competency
operational and commercial focus, to
externally with stakeholders. Rebuilding
framework is one such example. In
deliver for all our stakeholders in 2018.
trust is seen as vitally important and high
addition, although the Board is working
The Board faced into the Group’s
operational difficulties right from the
start of 2017 and, having set focused
operational priorities to deliver significant
and urgent improvement, was objective
and performed effectively during a period
of corporate activity in considering two
potential merger proposals and arriving
at the best outcome for shareholders.
A strategic and structural review followed,
completed by the new Chief Executive,
and the outcome was announced in
September 2017 to positive response.
During this time, the demands on the
Board were maintained at a high level
and its performance was underpinned by
our determined approach to governance
and the quality of the advice and support
it received. Although 2017 was a testing
period, the leadership from the Board and
the willingness of our staff to bring about
change has allowed us to emerge well
positioned to deliver on our medium term
targets. These targets will re-establish the
standards of corporate governance help to
well and has since added a non-executive
underpin this process. The Board believes
director with strong housebuilding
that the right culture and values play a
experience, it was important for us to
pivotal role in delivering long term success
reflect on its role in events leading up to
and require continuous focus, while the
end of 2016 and to ensure that any legacy
right standards and behaviours enable the
issues are being adequately addressed.
Board to function effectively in supporting
As a result, we are continuing to focus on
and overseeing senior management as they
the quality of information received by the
drive and reinforce the Group’s culture and
Board to ensure it provides clear visibility
values. Initiatives were already underway in
of performance and are maintaining our
this area and have moved forward in 2017,
focus on culture, as described above.
including an improved induction process
Following discussion of this wider view of
for all new staff, leadership sessions, and
performance, an action plan for 2018 has
a concerted push from the Chief Executive
been agreed by the Board and progress
to publicise whistleblowing, designed to
will be assessed mid-way through the year.
promote transparency and accountability.
Further information is provided on pages
I am making personal visits to the regions
70 to 71.
and holding one to one meetings with the
Division and regional MDs. The Board has
toured regional offices and sites, and non-
executive directors will have a programme
of site and office visits, all of which will
provide valuable feedback to the Board,
including regarding culture.
The main activities of the Board during
2017 are provided in detail in the report
and, in addition to regular activities,
included four visits to the regions, the
consideration of merger proposals,
recruitment of a new Chief Executive, an
in-depth review of strategy at the annual
Group as a leading UK housebuilder and
The Board completed an external
strategy day, and receiving reviews and
deliver improving shareholder returns in a
independent performance evaluation
presentations on a range of topics from
sustainable business that delivers quality
towards the end of 2017, which followed
senior management and the NHBC.
homes to satisfied customers.
the internal evaluation at the start of
60 | Our governance
Our governance
Two new regional offices were opened
towards the end of 2017, one of which
was visited in January this year. In total,
five regional office visits and one training
centre visit will be made by the Board
during 2018.
Our corporate governance practices remain
aligned with the latest version of the UK
Corporate Governance Code. The Board
reviewed its diversity policy in 2017 and will
do so again in 2018 in light of the expected
new Code requirements. The non-executive
directors continued to be effective in
providing broad and constructive challenge
in Board meetings and in testing proposals
put forward by the executive directors. I
was delighted to welcome Mike Stansfield
as a non-executive director in November
2017, bringing as he does a strong
housebuilding background spanning three
decades and skills and experience which
strengthen the Board going forward.
I would like to thank my colleagues on the
Board for their collective support and strong
individual contributions during a testing, but
productive and ultimately successful year
in 2017. Alastair Lyons will retire from the
Board at the 2018 AGM, having served as
Deputy Chairman and Senior Independent
Director for nine years since the date of
his first election and as Chairman of the
Remuneration Committee for four years.
I and my colleagues would like to thank
him for the very great contribution he has
made during this time and wish him well
for the future.
We value dialogue with all our shareholders,
institutional and retail, and have had
ongoing engagement with our major
shareholders during 2017. Our 2018
AGM will be held on 23 May 2018 and
you will find the Notice at the end of this
Annual Report.
This report has been approved by the Board
and I can confirm that your Company was
compliant with the provisions of the UK
Corporate Governance Code during 2017.
Glassthorpe Grange, Flore
Ian Tyler
Chairman
Bovis Homes Group PLC | 61
Bovis Homes Group PLC | 61
Corporate governance report
Whitehouse Park, Milton Keynes
62 | Our governance
Our governance
Corporate
governance
report
Introduction
This report sets out the Company’s compliance with the
UK Corporate Governance Code (“the Code”) issued by
the Financial Reporting Council (publicly available at
www.frc.org.uk) and also describes how the governance
framework, explained in our corporate governance policy
guidelines, available on the Company’s website
(www.bovishomesgroup.co.uk/investors/corporate-
governance), is applied.
The Board is pleased to report that the Company has,
throughout 2017, complied with and applied the provisions
of the UK Corporate Governance Code.
Bovis Homes Group PLC | 63
Strategic report | Business overview Corporate governance report
The leadership structure
These activities are carried out within
The Group has seven regions, reduced
The Board is responsible to the
Company’s shareholders for the
long-term success of the Group
and its values, strategy, business
model and governance.
It sets and reaffirms the Group’s culture,
provides leadership and direction and
determines strategy and strategic
objectives. The implementation of strategy
is monitored and business plans, budgets
and forecasts are reviewed and challenged,
applying independent judgement.
The monitoring of overall performance and
progress with operations against business
plans, using KPIs and coupled with site and
regional office visits, allows the Board to
an approved risk appetite and with
from eight in the first half of the year, each
regular monitoring of internal
operating within a specified geography
controls and risk management.
and run by a regional board comprising
The Board has a schedule of matters
directors responsible for specific disciplines.
reserved for its decision, which is reviewed
Standardised operating procedures and
and approved on an annual basis. A copy
systems have been adopted and their
is available on the Company’s website
implementation and consistent application
(www.bovishomesgroup.co.uk/investors/
is monitored to provide an effective
corporate-governance).
Below the Board, the Executive Leadership
Team (“ELT”) is responsible for the day to
day operations of the Group and the CEO
method of operating across the Group,
which reduces risk and supports the
delivery of forecast outcomes. The regional
MDs report in to the Division MDs.
and Group Finance Director report in to
Group functions provide support to the
the Board, with the other members of the
Board, the executive directors, the ELT,
ELT also attending meetings and reporting
the Divisions and the regions. In total, the
during the year.
leadership team comprises approximately
85 members of staff. The leadership and
governance structure in the second half of
2017 and for 2018 is shown below.
test the collective capabilities of the Group
Operations are managed in two Divisions,
and its ability to deliver quality homes, on
which are responsible for the collective
time and on budget to satisfied customers.
management of the regions within their
operating areas. Division staff provide
operational direction and finance support.
The Divisions report through the Division
MDs to the CEO and the ELT.
Bovis Homes Group PLC Board
Responsible for leadership, strategy,
values and governance
ELT
Executive Leadership Team
Bovis Homes Limited Board
Responsible for the operations of the Group
Audit Committee
• Oversees financial
statements and reporting
Remuneration
Committee
• Sets and reviews
• Monitors internal controls
remuneration policy
and risk management
• Monitors effectiveness
of external and internal
auditors
• Determines remuneration
and incentives of the
executive directors and the
Chairman
• Sets performance criteria
for incentive plans
Nomination
Committee
• Reviews balance and
composition of the Board
• Maintains focus on
succession planning
• Leads recruitment process
for the Board
• Recommends
appointment of directors
West Division board
East Division board
Responsible for the operational
management of the West Division
Responsible for the operational
management of the East Division
Mercia region
board
West Midlands
region board
Northern Home
Counties region
board
South East region
board
Western region
board
South West
region board
Southern Counties
region board
64 | Our governance
Title
Our governance
Strategic report | Business overview
The importance of culture
The Board
The Board keeps a focus on culture and
During the majority of the year the Board
uses meetings coupled with regional visits
comprised the non-executive Chairman,
to tour regional offices and sites, talking to
four independent non-executive and two
staff at all levels to get a true sense of the
executive directors.
prevailing culture and underlying behaviours
and attitudes.
Mike Stansfield was appointed an
independent non-executive director on 28
These visits also provide opportunity for
November 2017, increasing their number
the non-executives to engage in a way
to five, and brings a strong housebuilding
that models and reinforces the Group’s
industry background to the Board. The
values of Integrity, Caring and Quality,
provision of a comprehensive and tailored
supporting the message from executive
induction is ongoing for Mike and includes
management. Together with KPIs and
site visits, visits to the regional offices,
other data, this engagement allows the
meetings with senior management, and
Board to periodically assess whether
briefings on specific topics.
The Board held nine meetings in accordance
with its scheduled calendar and, as a result
of the level of activity during the year, held
nine additional meetings, the majority of
which were telephone conference calls.
The Board has a broad range of expertise
and experience and a strong blend of skills,
which has allowed it to perform effectively
during a challenging year for the business.
The non-executive Chairman brings a strong
track record of commercial experience in
construction and infrastructure related
industries, which benefit the Group in
the delivery of its strategy and oversight
of its business plans and performance.
Alastair Lyons has a broad base of business
culture is as expected and reflects that
set by the Board and to influence where
necessary. The Group’s vision, mission
statement and values are messaged to all
staff through a range of communications,
including inductions, presentations,
informal discussions and branding materials,
together with expectations regarding
supporting behaviours, including openness
and transparency.
“The Board keeps a focus
on culture, supporting the
message from executive
management”
Directors’ names and
functions are listed on
pages 58 to 59
Notice of the 2018
Annual General Meeting
pages 150 to 155
David Ritchie stepped down as Chief
experience, with a particular focus on
Executive on 9 January 2017 and, with the
mortgage lending and insurance industries
number of executive directors reduced to
and including chairing listed companies.
one, Earl Sibley, Group Finance Director,
Chris Browne brings a strong commercial
was appointed Interim Chief Executive, a
and operational background from a
position he held from 9 January to 18 April
consumer facing industry and Ralph Findlay
2017. Greg Fitzgerald was appointed CEO
adds strong commercial, financial and
on 18 April 2017 and Earl Sibley returned to
general management expertise, again
his role as Group Finance Director, restoring
from a consumer facing industry. Nigel
the number of executive directors to two.
Keen brings an in-depth construction and
Biographical details for the directors are
provided on pages 58 to 59. Their dates of
appointment, length of service to the end
of 2017 and attendance at Board meetings
are shown below.
property background and experience of
running property strategy and portfolios,
once again from a consumer facing
industry, and Mike Stansfield adds a
strong housebuilding industry background,
spanning three decades.
Name
Date of
appointment
Current role
Tenure in
current role
Attendance
at scheduled
meetings
Attendance
at additional
meetings
Ian Tyler
29/11/13
Chairman
4 years
Alastair Lyons
01/10/08
Deputy Chairman
9.25 years
Chris Browne
01/09/14
Non-executive
3.3 years
Ralph Findlay
07/04/15
Non-executive
2.75 years
Nigel Keen
15/11/16
Non-executive
1.1 years
Mike Stansfield
28/11/17
Non-executive
1 month
Greg Fitzgerald
18/04/17
Chief Executive
0.75 years
Earl Sibley
16/04/15
Group Finance
Director
(Interim Chief Executive
from 09/01/17 to 18/04/17)
2.75 years
9/9
9/9
9/9
9/9
9/9
1/1
6/6
9/9
9/9
9/9
7/9
9/9
7/9
-
3/3
9/9
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Corporate governance report
The five non-executive directors have
In accordance with the Companies Act
as age, gender, or educational and
been determined by the Board to be
2006 and as permitted by the Company’s
professional backgrounds, beyond the
independent in character and judgement
Articles of Association, the Board has
requirement for qualified professional staff
with no relationships or circumstances
authorised actual and potential conflicts
to hold certain positions.
likely to affect, or that could appear to
of interest and conflicts are reviewed
affect, their judgement.
All the directors will be offering themselves
for re-election at the forthcoming AGM,
annually. The Board is satisfied that powers
to authorise actual and potential conflicts
are operating effectively.
The policy is implemented by circulation
through the Group and publication on
the Group’s website and the Group also
has a long standing equal opportunities
in accordance with the Code, with
The Board has a diversity policy which
policy. The Board has one female non-
the exception of Alastair Lyons who
has been in place since September 2011
executive director and three female
will retire from the Board at the AGM,
and strongly supports the principle of
members of senior management report
having completed nine years as a non-
boardroom diversity, acknowledging that
in to the level below the Board. The
executive director since the date of his
gender is but one element of many. The
Board intends to review its diversity policy
first election. The Board strongly supports
Board seeks a mix of talented people with
during 2018, in light of the expected
all the individual director’s re-elections,
a range of experience, skills, vision and
new Code requirements. Gender metrics
taking account of the balance of skills
independence, recognising the importance
are contained in the corporate social
and expertise and the performance of the
of a blend of abilities, views and
responsibility report on page 40.
Board as a whole. Ralph Findlay will be
backgrounds to enable it, as the objective
appointed Senior Independent Director
of the policy, to function effectively.
with effect from the conclusion of
There are no particular considerations,
the AGM.
applicable to the Board or senior
management, concerning aspects such
All the directors have service agreements
or contracts and the details are set out in
the current remuneration policy, available
at www.bovishomesgroup.co.uk.
The Board’s site visit to the Group’s Barming development
In October 2017, the Board visited South East
region’s Orchard Fields, Barming development
in Maidstone.
Opened in March 2016 and located close to the M20, the site
offers two, three, four and five bedroom homes in an edge
of town setting, convenient for local living and commuting to
Ashford, Canterbury and London.
market, production, sales rates and customer satisfaction,
followed by a tour and inspection of the show homes.
A tour of the construction site was then conducted by the
site team, which provided the opportunity for discussion and
feedback on progress with the build programme, specific
issues experienced in development, training and support to site
teams, welfare, and health and safety performance.
Viewing of the sales office was coupled with discussion with
regional management and site and sales staff on the local
Returning to the sales office, discussion summarising the
site’s overall performance and objectives for 2017 and 2018
concluded the visit.
66 | Our governance
Board meetings
and main activities
There were nine scheduled meetings
and nine additional meetings
during 2017.
The Board maintains and reviews a
rolling agenda plan, which ensures
that all key issues and matters reserved
to the Board are discussed at the
appropriate time, and any requirement
for additional meetings is identified by
the Chairman, in conjunction with the
Chief Executive, Group Finance Director
and Company Secretary.
The Chairman reviews meeting
agendas with the Chief Executive and
Company Secretary and the Company
Secretary maintains a rolling schedule
of matters arising, which tracks
progress with actions and is reviewed
at each meeting.
The Board receives a comprehensive
electronic meeting pack a week in
advance of each meeting plus other
information required to enable it to
discharge its duties. Meetings are
conducted in an atmosphere of open
and free flowing discussion and debate,
with a questioning approach which
enables the non-executive directors
to challenge and test the strategy,
progress made with implementation,
and proposals put forward by the
executive directors. Members of the
ELT and the Group Financial Controller
attended a number of meetings in
2017, increasing the range of views
and the input available to the non-
executive directors.
Our governance
The main activities at Board meetings in 2017 were as follows:
• the Interim Chief Executive presented
• the Board received regular reports
proposals and regular updates on
covering health and safety and
operational priorities for 2017 and the
discussed performance against
way forward in resetting the business,
KPIs, areas for improvement and
including reports on customer service
monitored actions taken, including the
issues, the actions taken and progress
effectiveness of engagement with site
made. The Interim Chief Executive
teams and subcontractors.
also presented the 2017 Budget for
A presentation on a new behavioural
approval and continued to provide a
health and safety system was also
regular finance report, with support
received and discussed.
from the Group Financial Controller,
before reverting to the position of
Group Finance Director. The finance
report includes, at various times,
rolling forecasts, Group KPIs, budgets,
results, projections, leading market
indicators, analyst consensus data and
an analysis of share price valuation
and movements.
• the Board reviewed IT strategy,
receiving a presentation from the
Head of IT, which included the security
strategy and input to key projects.
• a summary of Quality Construction
Reviews completed by the NHBC was
reviewed and a presentation was given
by the NHBC, followed by a question
• the Board held several meetings
and answer session.
and conference calls to discuss the
relative merits of the merger proposals
received from Redrow plc and
Galliford Try Plc versus the Group’s
operational and financial plans and,
having considered the feedback
from engagement with shareholders,
decided that both proposals should
be rejected.
• the Board reviewed progress with the
appointment of a new Chief Executive
and appointed Greg Fitzgerald with
effect from 18 April 2017.
• the new Chief Executive presented
an initial report on his thoughts and
findings and subsequently provided
reports and updates spanning the
• the 2016 results and the 2017 interim
results were reviewed and approved,
including release to the London
Stock Exchange.
• the Budget for 2018 was the subject
of debate, challenge and detailed
consideration.
• actions arising from the 2016
Board performance evaluation were
monitored and the provider for the
2017 external independent evaluation
was identified and the evaluation
process commenced.
• succession planning reviews were
presented by the Head of HR for the
ELT and for the leadership team below
Group’s activities, including progress
the ELT.
with implementation of the strategy,
customer satisfaction, health and
safety, HR matters, investor feedback,
trading performance, land acquisitions
/ sales, affordable housing, and
progress with key projects.
• an operating review pack containing
standardised processes and controls
for the regional operations was
presented by the Division MDs.
• progress with the recruitment of
a new non-executive director was
monitored, appointing Mike Stansfield
with effect from 28 November 2017.
• the Board completed a broker review,
appointing Deutsche Bank AG London
as joint broker.
The Board also reviewed dividend policy, principal risks and mitigation, regulatory
announcements, major shareholdings, litigation, the share dealing code, the process
for the longer-term viability statement, and plans for the 2017 strategy day.
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Corporate governance report
Five of nine scheduled meetings were
The Board considers stakeholders in its
Customer feedback received detailed
held in London and four were held in the
deliberations and takes into account the
consideration during 2017 and was
regions, providing opportunity to interact
views of and feedback from shareholders,
carefully monitored, including individual
with local management teams and tour
employees, subcontractors, suppliers, and
meetings, feedback from sites, and the
regional offices and sites, meeting staff
customers. Comprehensive discussions
HBF customer satisfaction survey score,
at all levels. Three regional management
took place with shareholders during
to ensure that customer issues were
teams provided presentations to the Board
the first half of 2017 and feedback has
being properly resolved to an
in open discussion and question and
continued to be taken following the
appropriate standard.
answer sessions, which followed site visits
publication of the strategic review
to view construction activities, show homes
update published with the Group’s half-
and sales offices. All sessions concluded
year results.
The annual strategy day held in July
provided the Board with the opportunity
for an in-depth review of the strategy for
Indirectly through the executive team,
the Group and received a presentation
the views of employees are received on
from brokers on the external environment,
specific topics via employee liaison groups
considered the political backdrop, and
and reports from the HR function and are
reviewed the risk appetite and factors
taken into account in decisions affecting
leading up to the Group’s operational
operations and employment conditions.
difficulties, which peaked at the end of
Subcontractors attend adjudication and
2016. Progress with the Group’s strategic
project meetings and recent feedback
and structural review was discussed
has been taken on the product range,
and development of the strategy was
ease of build and means of improving
progressed. Structure based on operational
engagement and communication. They
factors was also reviewed, requiring a
also have ongoing involvement regarding
reduction from eight regions to seven, and
health and safety. Suppliers attend regular
capital investment, affordable housing,
meetings and provide input to product
people and balance sheet optimisation
and specification. Feedback on these
were discussed.
areas arises from updates received by the
Board and the impact on stakeholders is
considered as part of proposals put to
the Board.
During the year, the Chairman held a
meeting with the non-executive directors,
without the executive directors present,
and the Senior Independent Director held a
meeting with the non-executives, without
the Chairman present.
with an evening meeting with regional
management and members of the ELT.
“The regional management
teams presented to the
Board in open discussion
and question and
answer sessions”
“The Board considers
stakeholders in its
deliberations”
68 | Our governance
Title Our governance
The Avenue, Moreton-in-Marsh
Ensuring an effective Board
The Board carried out an internal
formal evaluation of its 2016
performance at the beginning of 2017
using Independent Audit’s “Thinking
Board” software.
The overall result reflected the
challenges that the business faced
in 2016 and, whilst the underlying
direction, culture and management of
the Board were strong, the evaluation
identified material areas for focus in
2017, which were set out in the 2016
Annual Report. During 2017, therefore,
the Board focused on the following
aspects of its performance:
Culture
Succession planning
The Board placed greater emphasis
Succession planning and the talent
on understanding the relationship
pipeline were reviewed by the Board
between central, divisional and
and progress was made, allowing more
regional management, the impact on
direct focus on the identification of the
development of an accountable and
necessary skills and characteristics and
customer centred culture across the
the development of individuals to deliver
business, and on identifying measures of
the Group’s strategy. The Head of HR
the extent to which changes to culture
presented succession planning reviews
and practice were becoming embedded.
to the Board and it was agreed that the
Regional visits, discussion with staff at all
exercise will be repeated in mid-2018
levels, KPIs and other data were used for
and again at the end of 2018 to ensure
this purpose, concluding that a customer
that a rigorous approach evolves.
centred culture was developing, but that
there was more to do in some areas.
Risk management
Strategy and execution
Reward structure
Greater focus was given to the impact
Material weaknesses in the Group’s
Measures of performance adopted
and visibility of customer service and
production planning capability led to
for variable reward were found to
quality failures on the Group’s wider
customer service issues arising and the
have focused too heavily on financial
reputation. Customer service and quality
Board instigated a full review, both
performance and a new directors’
issues were discussed at each Board
of the Group’s production planning
remuneration policy was approved at
meeting in 2017 and non-financial KPIs
process and the Group’s approach to
the 2017 AGM and included for
were used to monitor progress. The new
customer service. These reviews resulted
non-financial variable reward metrics.
Head of Internal Audit & Risk completed
in the implementation of standard
several reviews which included the
operating processes, controls and review
monitoring of build programme delivery
mechanisms in the regions.
and customer service controls and
reported to the Audit Committee.
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Towards the end of 2017, the Board
completed its third external independent
performance evaluation. This was
conducted by Independent Board
Evaluation (“IBE”), who have no
other connection with the Company.
The interview based methodology and
approach allowed the Board to review its
2017 performance in considerable depth.
The process comprised:
(i)
a briefing with the Chairman, Chief
Executive and Company Secretary to
establish the background and set tone;
(ii) a confidential and consistent interview
process with Board members, the
Company Secretary, the remainder
of the ELT, six members of senior
management below the ELT, the
engagement partner at PwC, the
external auditor, and the partner at
Deloitte responsible for advice to the
Remuneration Committee, and;
2018 action plan
Strategy
(iii) Board and Committee meeting
attendance by IBE to observe the
dynamics and culture of the boardroom,
which took place in December 2017.
Feedback was also collected on the
Chairman, for reporting to the SID, and
on the individual directors for feedback
to the Chairman. The feedback for the
committees was presented to each
Committee Chair. The output for the
Board was discussed with the Chairman
and the Chief Executive and was presented
to the Board by IBE at a meeting held in
January 2018.
Overall, board members considered
that the Board had established an open
and transparent relationship with the
new CEO during 2017, which was
working well. Board members have clarity
on the challenges facing the Board,
what needs to be done, and the degree
of change that it needs to drive in
the organisation. The Board operates what
is described as a strong collegiate culture
Induction
and is highly supportive of the approach
the CEO is taking as he resets the business.
Over the coming year, Board members
are aware of the need (i) to ensure that
sufficient challenge is presented to the
executive directors; (ii) to ensure that they
are close enough to the business and
senior management to drill down if there
are nascent problems; (iii) to focus on
succession planning amongst the executive
and for the Board; and (iv) to determine
the medium to long term strategy.
Board members felt that good progress
had been made during 2017 in several
areas, such as risk management, Board
focus and Board culture, whilst there
were areas of performance that could
be improved for the future. IBE made a
number of recommendations and the
Chairman formulated an action plan,
which was discussed and approved by the
Board, based on the key recommendations
and areas of focus for the Board to take
forward in 2018, set out below.
Following a clear exposition by the CEO of the re-set strategy,
The current programme will be optimised for future joiners,
the Board will participate in a strategy day in July 2018 to review
reflecting the needs of their particular skill sets and backgrounds.
the three to five year horizon. Whilst relevant to all aspects of
the Board’s operation, the outcome of these discussions will
Decision making
be fed into the Nomination Committee in so far as they affect
board composition, board skills training, and succession planning
in the executive.
Board composition
The Chairman and the Company Secretary are to review the
delegation of authority to ensure that there is absolute clarity
on the areas where the board is to be consulted or informed and
the issues that are within the remit of management.
Clearer signposting of decision making areas in the Board papers
A formal competency matrix is to be developed to assess the
Board’s current strengths and weaknesses, and to reflect the
will follow.
skills and characteristics required once the longer term strategy
Board meetings
has been determined. With the retirement of the Deputy
Chairman and SID at the AGM, the Board is seeking a candidate
with strong PLC experience who will enhance the diversity of the
current Board.
Individual performance evaluation
In tandem with the competency matrix, a more formal annual
process will be instigated by the Chairman to review individual
The Chairman and the Company Secretary are to review whether
sufficient time is allocated to the topics under consideration and
are to consider revising the schedule and timetable for Board
and committee meetings, with consequent adjustments to
agenda management. The best way of establishing a feedback
loop on the effectiveness of Board meetings with the non-
executive directors will also be considered.
director performance and to identify development goals for each
Board papers
director, to be reviewed by the Nomination Committee.
Succession planning
Improvements to the format and content of the Board pack
were identified. This will include further work on KPIs to provide
a clearer “at a glance” view of critical areas including customer,
Progress has been made during the sessions noted above, but
production, quality, HR and cultural indicators. The Board will
further work is required in a structured approach, particularly
also be furnished with more external data and input, including
regarding longer term planning around the Chief Executive and
regular presentations from NHBC.
his senior team.
70 | Our governance
Our governance
It is intended that IBE attend a meeting in July 2018 to discuss progress with the action
he developed his understanding of the
plan with the Board and assess whether any additional actions are needed during 2018.
Company and then his future strategy for
During the interview process, IBE also facilitated discussion on the events leading
September after appropriate challenge by
up to the operational difficulties which peaked in December 2016 and resulted in
the Board, led by the Chairman.
the business, which was announced last
the Group putting a clear set of operational priorities in place in early 2017. The
discussion presented Board members with an opportunity to reflect with the benefit
of hindsight and to draw out lessons learned that might still be relevant to the
resetting of the business under the new CEO.
The feedback from participants presented a consistent view that the problems
experienced in the business were cumulative and that there were a number of
contributory factors. These included reflections on the risks of the strategy for
growth, the embedded culture of the Group, and the depth of succession planning.
The feedback indicated that during 2015 and 2016, the Board had identified a
number of the issues and was taking steps to remedy them, but for a number of
reasons, did not have a wide enough view of operations, was not able to read the
true position of the business from the information presented to it, and did not have
sufficient access to an independent assessment of quality and customer service.
Many of the actions to address these shortcomings form part of the areas of focus
for the Board to take forward in 2018, set out on page 70. In addition, the Board
took immediate steps in early 2017 to:
• Recruit a non-executive director with a deep operational pedigree in the
housebuilding industry, resulting in the appointment of Mike Stansfield to
the Board.
Throughout the challenges and changes
faced by the Company he maintained
constructive dialogue with the Company’s
principal institutional investors, providing
insightful feedback to the Board’s
assessment of the most effective direction
for the Company to take.
As Chairman of the Nomination
Committee, the Chairman has sought to
increase the Board’s effectiveness through
succession planning, adding during 2017
a non-executive director with a house-
building background, having towards the
end of 2016 also recruited a non-executive
director with property experience.
Board committees
The Board is supported by standing
Audit, Nomination and Remuneration
• Engage with the NHBC on the Group’s performance in delivering construction
Committees.
quality and customer service, receiving a presentation during a Board meeting in
December 2017 and establishing a programme of regular interaction and annual
presentations.
• Continue its focus on organisational culture and ensuring it has strong relationships
with senior management below the CEO with more frequent interaction. This
includes a programme of formal and informal regional office and site visits by all
Board members and a programme of one to one meetings between the Chairman
and Division and regional MDs.
Membership, roles and activities are
set out in separate reports. The Audit
Committee report is on pages 98 to 101,
the Nomination Committee report is on
pages 102 and 103, and the Remuneration
Committee report is on pages 78 to 97.
Each Committee reports to and has terms
of reference approved by the Board and
the minutes of Committee meetings are
The performance evaluation of the
Chairman was led by the Senior
Independent Director, with input from
all other members of the Board. It was
again considered that the Board had been
effective under the Chairman’s leadership
with well-planned meetings, appropriate
agendas based on a good understanding
of the Company’s business model and
strategy, and broad effective contribution
by directors. Board meetings continue to
be held in a conducive environment with a
strong focus on the important issues and
open debate and constructive challenge.
The Chairman provided strong and
circulated to the Board for review.
effective leadership of the Board during
a difficult period for the Company, when
operational shortcomings caused it to fall
short of expectations; there was a change
of Chief Executive; and the Company
received two unsolicited approaches
to merge with other housebuilders.
Throughout these challenges he acted
decisively and always with the best
interests of shareholders in mind.
During the year he has spent significant
time both on sites and with the Company’s
executives and relevant external advisers.
He has developed a good working
relationship with Greg Fitzgerald, the
new Chief Executive, supporting him as
The Audit Committee is chaired by Ralph
Findlay, the Remuneration Committee
is chaired by Alastair Lyons and the
Nomination Committee is chaired by Ian
Tyler. It is proposed that Nigel Keen take
the Chair of the Remuneration Committee
on the retirement of Alastair Lyons at the
2018 AGM.
The external independent Board evaluation
included performance evaluations of the
Committees and all were identified as
having areas where performance could
be improved. Further detail is given in the
individual Committee reports.
Bovis Homes Group PLC | 71
Bovis Homes Group PLC | 71
Induction
The current programme will be optimised for future joiners,
reflecting the needs of their particular skill sets and backgrounds.
Decision making
The Chairman and the Company Secretary are to review the
delegation of authority to ensure that there is absolute clarity
on the areas where the board is to be consulted or informed and
the issues that are within the remit of management.
Clearer signposting of decision making areas in the Board papers
will follow.
Board meetings
The Chairman and the Company Secretary are to review whether
sufficient time is allocated to the topics under consideration and
are to consider revising the schedule and timetable for Board
and committee meetings, with consequent adjustments to
agenda management. The best way of establishing a feedback
loop on the effectiveness of Board meetings with the non-
executive directors will also be considered.
Board papers
Improvements to the format and content of the Board pack
were identified. This will include further work on KPIs to provide
a clearer “at a glance” view of critical areas including customer,
production, quality, HR and cultural indicators. The Board will
also be furnished with more external data and input, including
regular presentations from NHBC.
Corporate governance report
Governance through
the business
The Board aims to meet governance best
practice in light of the Group’s business
model, organisation structure, processes
and internal controls.
The Group currently complies with and
applies the provisions of the UK Corporate
Governance Code and will review the
new edition of the Code during 2018 to
determine the actions it should take to
meet the revised requirements.
Further details of the Group’s current
approach to governance best practice are
set out below.
Amongst matters reserved for the Board are
the overall leadership of the Group, setting
the Group’s values and standards, approval
of strategy and budgets, oversight of
operations and performance, structure and
capital, financial reporting, internal controls,
corporate governance, and approval of
major expenditure and transactions.
The Board has approved a written
division of responsibilities between the non-
executive Chairman and the Chief Executive
and the role of the non-executive Deputy
Chairman has been similarly defined.
The Chairman is primarily responsible for:
• the effective working of the Board,
• taking a leading role in determining the
Board’s composition and
structure, and
The Deputy Chairman supports the
Chairman in ensuring that the Board is
effective and constructive relations are
maintained, in addition to acting as the
Senior Independent Director, in which
capacity he leads the annual performance
evaluation of the Chairman and provides an
additional point of contact for shareholders.
The control framework is subject to Board
review. The Group has a defined set
of authorities, procedures and controls
across the range of its activities, which
• ensuring that effective communications
have been mapped and documented and
are maintained with shareholders.
are available to all staff via the Group’s
The Chief Executive is responsible for:
intranet, including the authorities and
decision making delegated by the Board to
• the operational management of
management in respect of the operational
the Group,
• developing strategic operating plans and
presenting them to the Board, and
control of the Group. These are regularly
and formally assessed both by Internal
and external audit, in addition to being
subject to a quarterly self-assessment
• the implementation of strategy agreed by
process established in 2017. The Group’s
the Board.
leadership structure provides the framework
for governance control, reporting and risk
management and is set out on page 64.
72 | Our governance
Tadpole Cross, Swindon
The advice and services of the Group
Company Secretary are available to
the directors. All directors have access to
the Company’s professional advisers and
can seek independent professional advice
at the Company’s expense. There was no
advice sought during the year.
Training is made available to directors at
induction and as required to develop and
maintain knowledge and the Chairman
is responsible for ensuring that directors
continually update and refresh their
knowledge and skills appropriate to their
role on the Board and Board Committees.
Directors are also required to maintain their
awareness of the culture and operations
of the Group. During 2017, the directors
received training on the legal and regulatory
framework for UK Takeovers and a
general corporate governance update,
including the FRC’s proposals for a revised
Corporate Governance Code, and other
regulatory developments.
The Company has an insurance policy in
place which insures directors against certain
liabilities, including legal costs.
Information on share capital is provided on
pages 105 and 106.
Title Our governance
Strategic report | Business overview
Shareholder engagement
The Company has a comprehensive
investor relations programme, which
allows the Chief Executive and Group
Finance Director to regularly engage with
our major shareholders.
In addition to one-to-one meetings
through the year, the Company holds
a series of presentations and meetings
following the announcement of
the final and half-yearly results.
These presentations are made publicly
available so that all shareholders can
access them on the Group’s website at
www.bovishomesgroup.co.uk.
During the early part of 2017, the
Chairman held a series of meetings and
calls with shareholders relating to the
merger proposals received from Galliford
Try Plc and Redrow plc to provide
information, explore their views and take
conclusions regarding the relative merits
of the proposals versus the Group’s
future operational and financial plans.
These meetings were extremely useful in
guiding engagement on the proposals to a
conclusion, including the recruitment
of Greg Fitzgerald as the new
Chief Executive.
Nine Acres, Bishopstoke
An increased level of shareholder
All shareholders have the opportunity
engagement has since been maintained,
to exercise their right to vote and can
including with the strategic update
appoint proxies if they are unable
which took place in September 2017 and
to attend. To facilitate ease of voting
subsequent announcements, enabling the
we provide an electronic voting facility.
Board to monitor shareholder sentiment.
Shareholders attending the AGM have the
The Board reviews feedback from investor
relations meetings, visits and presentations,
including commentary on the matters
discussed. The feedback received during
2017 was extremely helpful to the Board
and assisted with the focus of the strategic
review and the direction of the Group.
The Board also values other channels to
obtain shareholders’ views. The Chairman
is responsible for ensuring that all directors
are aware of any issues or concerns
raised by major shareholders. In addition,
the Deputy Chairman (also the Senior
Independent Director) is accessible
to shareholders.
All shareholders are invited to attend the
Company’s AGM, which this year will be
held on 23 May 2018. The full Board,
including all Committee Chairmen, attend
and value this meeting as a means of
communicating with private investors,
encouraging their participation.
opportunity to ask questions relevant to the
business of the meeting and hear the views
of other shareholders before casting
their vote. After the meeting the results of
voting on all resolutions are published on
the Group’s website.
“An increased level of
shareholder engagement
took place in 2017”
Bovis Homes Group PLC | 73
Corporate governance report
Risk management and
internal control
The Board has responsibility for
maintaining and monitoring sound risk
management and internal control systems.
The Board’s role includes responsibility for
the risk appetite and the identification,
management and mitigation of risk. Risk is
a regular discussion item, which allows the
directors to review the risk appetite and
principal risks and assess the quality of risk
management processes and risk mitigation.
Risk is also a theme running through many
other Board discussions.
In setting its approach, the Board aims
to ensure that the Company is neither
prevented from taking opportunities nor
exposed to unreasonable risk.
Monitoring and review forms part of the
work undertaken by the Audit Committee
and is based principally on the review of
reports from the co-sourced Internal Audit
all material controls, including financial,
operational and compliance controls
and compliance with risk management
processes. In addition, a Risk Governance
Committee operates with representation
from the regional businesses to support
the monitoring of existing threats,
alongside the identification of emerging
risks across the Group.
In reviewing the effectiveness of the
Company’s system of internal control
and risk management systems, the Board
(i) considered the risk appetite and (ii)
and impact of the principal risks, their
mitigation, the controls placed against
them and the Company’s ability to
respond to changes and (iii) received
reports from the Audit Committee on the
operation and effectiveness of the risk
management and internal controls
systems and their integration with
strategy and the business model.
The Board also reviewed the minutes of
Audit Committee meetings and the minutes
of Risk Governance Committee meetings.
74 | Our governance
function and from management. It covers
A period of ambitious growth led to
considerable operational pressures and
challenges being experienced, resulting
in operational difficulties, which peaked
reviewed changes in the nature, likelihood
events leading up to the 2016 year-
Recommendations for improvements to
The Audit Committee reviewed build
internal controls were made during the
programme delivery and customer service
year and corrective action was taken, but
controls via regional reviews, together
they did not represent significant control
with the measures taken to strengthen
failings or weaknesses.
their effectiveness and reduce operational
pressures. During the year, it monitored
the outcome of the reviews put in place by
the Board, which resulted in a significant
improvement in the control environment.
in December 2016. Weaknesses in the
The Board has complied with Principle
application of operational and customer
C.2 of the Code by completing a robust
service controls manifested themselves as
assessment of the principal risks facing
control failures under these pressures,
the Company and it has established
with the outcome that, whilst the
a continuous process for identifying,
controls are fit for purpose, they
evaluating and managing the principal
were not fully effective in maintaining
risks, in accordance with the FRC’s
operational control in respect of quality
“Guidance on Risk Management, Internal
and customer service.
In early 2017, the Board reviewed the
end and the causation of the control
failures and reasserted the importance
of leadership and the right behaviours
Control and Related Financial and Business
Reporting”. This process has been in place
for the period under review and up to the
date of approval of the Annual Report and
Accounts and includes compliance with
provision C.2.3.
and of controls being properly applied
It is designed to manage rather than
by the business. It also put a clear set of
eliminate risk and can only provide
operational priorities in place, including
reasonable and not absolute assurance
a focus on customer service, a review of
against material misstatement or loss.
customer service procedures and a review
of the build process.
“The Risk Governance
Committee has representation
from the regional businesses”
Title Our governance
Control framework
The Company maintains computer systems
The Company maintains a regular
The Company maintains a comprehensive
control environment, which is regularly
reviewed by the Board.
The principal elements of the control
environment include regular board
meetings, the Division and regional
structure, defined operating controls and
authorisation limits, a co-sourced Internal
Audit function and a comprehensive
financial reporting system.
There are a number of elements of
the Company’s internal control and
risk management systems that are
specifically related to the Company’s
financial reporting process:
• there is a well understood
management structure which
allows for clear accountability and
an appropriately granular level of
financial control.
• the structure is underpinned by
documented authority levels for
business transactions.
• the process is further supported
by process documents for both
internal management reporting and
external reporting which stipulates,
amongst other things, reporting
timetables and the contents of key
management reports.
• during the last quarter best
practice processes and procedures
were mapped for all core and
support activities.
• during the last quarter of 2017 a
quarterly self-assessment for all
director level employees was put
in place to confirm adherence
to mandatory controls and non-
conformities are reported to the ELT
for discussion and remediation.
Directors’ names and
biographies are listed on
pages 58 to 59
Notice of the 2018
Annual General Meeting
pages 150 to 155
that record financial transactions and
weekly and monthly financial reporting
whose effectiveness is reviewed by the
cycle, allowing management to assess
co-sourced Internal Audit function on a
financial progress. This is further supported
regular basis. Any findings arising from
by a formal budget and monthly rolling
these exercises are reported to the Audit
Committee and action is taken,
as appropriate.
forecasting process which ensures that
there is a recent financial forecast in
place at all times against which to
Control over cash expenditure is a
key component. The Company maintains
tight control in this area through a
centralised and regional payment function,
regularly maintained authorisation
documents and segregation of
authorisation accountability.
assess performance. Together with this
financial reporting, the Company requires
its Division and regional management
teams to report key business issues
promptly and as part of a monthly
regional operational reporting pack on
a standard basis.
Finally, there is a process of accounts
preparation which ensures that there is
an audit trail between the output from
the Company’s financial reporting system
and the financial statements as they are
prepared for reporting.
Mildenhall, Sherborne
Bovis Homes Group PLC | 75
Bovis Homes Group PLC | 75
76 | Our governance
Our governance
Keeping
customers
happy
Delivering a high standard of
customer service has been
a priority across the Group
Heyford Park, Upper Heyford
Bovis Homes Group PLC | 77
Directors’ remuneration report
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the financial year ended 31
December 2017.
It provides details on how directors were paid in 2017 and the link
between remuneration and the Company’s performance.
It also outlines how we intend to implement the remuneration
policy in 2018. It is subject to an advisory shareholder vote at the
2018 AGM.
On pages 95 to 97 is annexed the remuneration policy table
which was approved by shareholders at the 2017 AGM.
The remuneration policy in its entirety can be found on the
Company’s website.
Alastair Lyons
Chairman of the
Remuneration Committee
Remuneration in context
At the core of this strategy is a material
It, therefore, determined to use its
Following the difficulties the Company
experienced towards the end of 2016
management’s focus in 2017 was on
operational priorities to ensure effective
delivery as a quality housebuilder with
a particular focus on customer service.
This has been reflected in a significant
improvement in our more recent customer
satisfaction scores. As planned, we
intentionally slowed the rate of production
to reset the business and address
operational issues. Against this backdrop,
while the number of legal completions was
reduced, the Group delivered a disciplined
performance in line with management
expectations, meeting all of its operational
and financial targets.
At the start of the year, we launched a
programme of actions to transform our
production processes and customer service.
Whilst the business is already benefitting
from these initiatives, the significant
investment required was expected to
improvement in the Group’s Return on
discretion to award him an additional bonus
Capital Employed, the level of which
of 15% of salary, increasing the overall
is widely recognised to be positively
bonus award to 73.6% of maximum bonus.
correlated with the relative valuation
Further explanation of the annual bonus
investors place on companies operating in
performance assessment can be found
the housebuilding sector. This is planned
on pages 83 to 84.
to be achieved by an improvement in
our operating margins and a reduction
in capital employed, in particular by a
programme of balance sheet optimisation,
which in turn will create the potential to
return capital to shareholders in the form
of special dividends. During 2017 we made
excellent progress with this balance sheet
restructuring, resulting in a £145m net
cash balance at year end.
At the General Meeting on 2 May 2017
shareholders approved a separate bonus
for Greg Fitzgerald, the new Group
Chief Executive, for 2017, in lieu of
his participation in the annual bonus
scheme. Payment of this is based on the
Committee’s assessment of his leadership
of the strategic and structural review
during the year and will be made
entirely in shares, to be released on
The Board is committed to building upon
the third anniversary of his appointment
the progress made in 2017 and has
(18 April 2020), subject to his continued
designed our remuneration framework to
employment until 18 April 2019.
continue to underpin achievement of our
After careful consideration, the Committee
strategic objectives in 2018.
determined that the bonus would be
Remuneration in 2017
adversely impact the Group’s operating
The performance in 2017 resulted in
margin in the short term. Accordingly,
58.6% of maximum bonus being awarded
basic earnings per share (“EPS”) reduced
to the Group Finance Director, Earl Sibley,
by 24.5% to 68.0p and Return on Capital
against the stretching financial and
Employed (“ROCE”) finished at 13.7%.
operational targets detailed later in
At the same time, the Group delivered a
the Report. Reflecting on the period
strong forward sales position to support
during which he was Interim Chief
awarded in full reflecting Greg’s strong
strategic leadership since his appointment.
No bonus was payable to the former
Group Chief Executive, David Ritchie, in
respect of 2017.
As a result of the EPS, ROCE and TSR
performance conditions not being met,
the LTIP awards granted in 2015 will lapse
growth in 2018.
Executive, the Committee considered that
in full. Absolute cumulative EPS reached
Going forward, the Board considers it vital
that our remuneration arrangements are
aligned to the execution of our strategy,
which was announced in September 2017
following a review by our new Group
Chief Executive.
he had surpassed expectations of what
could be achieved against the very
difficult backdrop of the Group having
significantly fallen short of market
expectations for 2016 and also being in
receipt of two unsolicited approaches.
253.5p in 2017 against a stretching target
range of 320p to 400p. ROCE reached
13.7% in 2017 against a target range of
19.4% to 23.3%. The Group’s TSR over
the last three years was 57%, against the
comparator group median TSR of 95%.
78 | Our governance
Board changes
On 9 January 2017 David Ritchie stepped
down as Group Chief Executive. Full details
of his contractual payments on cessation
were disclosed to shareholders in the 2016
Directors’ Remuneration Report.
Greg Fitzgerald joined the Group on
18 April 2017. His remuneration
arrangements, including the granting
of share awards which were separately
approved by shareholders at the General
Meeting on 2 May 2017, are detailed
on pages 83, 85 and 86.
Remuneration Policy
implementation in 2018
Following the appointment of Earl Sibley in
April 2015 the Committee communicated
its intention to bring Earl’s salary to an
appropriate market rate through a series of
phased increases over the subsequent three
years subject to his pace of development
and his contribution to the Group. April
2018 marks the third anniversary of his
appointment and the Committee considers
that the strength of his performance,
including a period as Interim Chief
Executive, to have been such as to warrant
his moving to a full market rate. As a
consequence, his salary was increased from
£300,000 to £325,000 (8.3%) with effect
from 1 January 2018.
Greg Fitzgerald’s salary was increased
from £650,000 to £666,250 (2.5%) in line
with the general increase for the wider
employee population.
Following the regular annual review,
the Committee determined that, having
focussed particularly in 2017 on operational
delivery and customer satisfaction, the
annual bonus measures for 2018 should be
adjusted to align more with our medium
term targets, whilst at the same time
maintaining focus on strong operational
delivery and high levels of customer
satisfaction. The Committee has, therefore,
rebalanced financial and non-financial
metrics from 50%:50% to 60%:40%,
introducing operating margin and legal
completion profile measures into the
2018 bonus. ROCE and build programme
delivery measures, as well as the element
relating to individual performance
objectives, have been removed.
To maintain focus on customer service,
The Committee recognised that it would
a Home Builders Federation customer
require specific AGM approval to enable
satisfaction survey score of at least 70%
Earl Sibley to participate in the Plan on
must be achieved before any of the bonus
a one-off basis. Following extensive
measures can pay out. Full details of the
consultation and having considered the
metrics and weightings are provided
views of shareholders, the Committee
on pages 91 and 92.
The performance measures for the LTIP
remain unchanged for the 2018 awards,
but have been rebalanced to 25%
weighting for each of customer satisfaction,
TSR, ROCE and EPS. The TSR maximum
performance target is intended to reflect
upper quartile performance against an index
of the UK’s leading housebuilders. Having
reassessed what now fairly reflects such
upper quartile performance, the maximum
has been amended from the annualised
median of the index, plus 10%, to the
annualised median of the index, plus 7.5%.
Exceptional LTIP Award
decided that rather than seeking such
approval instead it would make an
exceptional award under the LTIP to
incentivise Earl’s vital contribution as a
leader, educating and reinforcing the
change of mindset, and taking charge
of many of the specific cash initiatives
that form part of the programme of
balance sheet optimisation linked to the
Group’s strategy of achieving a material
improvement in the Group’s Return on
Capital Employed. The exceptional element
of this award will entirely be measured
against the same cash generation metrics
and ROCE as adopted within the Project
200 Incentive Plan.
When discussing the proposed programme
Conclusion
of balance sheet optimisation the Board
recognised that to achieve this required
a change in corporate mindset, from
a predominant focus on profit to an
understanding that the level of capital
employed was an equally important
I hope you find that this report clearly
explains the remuneration approach
adopted by Bovis Homes and that it enables
you to appreciate how it aligns to our
strategic priorities.
measure of success. The Board also saw the
The Committee takes an active interest
potential to achieve a rapid step-change
in capital employed allowing the return
of capital to shareholders in the form of
special dividends and the potential to
in shareholder views, as evidenced by the
consultation we have undertaken regarding
the proposals outlined above. I look forward
to your voting support at the 2018 AGM
further enhance shareholder value through
and will be available to take any questions
an improved return on capital employed.
you may have.
Given that the Board saw a current
opportunity to release significant amounts
of cash from the Company’s balance
sheet the Committee, therefore,
introduced the Project 200 Incentive Plan
in September 2017 and made awards to
senior management below the Board.
These awards are in shares, have as a
threshold cash generation by the end of
2018 at a level in excess of the guidance
given to the City, and only vest if the
resulting lower levels of capital employed
are maintained through the subsequent
two balance sheet dates, to support the
embedding of the change in mindset.
Alastair Lyons
Chairman of the Remuneration Committee
Bovis Homes Group PLC | 79
Our governance Introduction
This annual remuneration report explains how the remuneration policy has been implemented in the year ended 31 December 2017 and how
it will be implemented for 2018. Details of remuneration in 2017 are set out first, followed by the approach for 2018.
At a glance summary
Component and where to find
David Ritchie - CEO
(resigned 09 January 2017)
Greg Fitzgerald – CEO
(appointed 18 April 2017)
Earl Sibley - GFD
Single figure totals for 2017 (page 82)
Annual bonus payments for 2017
(pages 83 to 84)
£28k
n/a
£1,376k
£661k
73.6% of maximum
2017 Bonus award:
100% of total award
vested, to be released
in April 2020 subject to
continued employment
until April 2019.
LTIP awards vesting in respect of 2017 (page 85)
Lapsed in full
n/a
Lapsed in full
LTIP awards granted in 2017 (page 85)
Salaries for 2018 (page 90)
Shareholding as % of salary (page 88)
Guideline: 100% of salary (CEO 200%)
Changes to the remuneration policy for 2018
n/a
n/a
n/a
200% of basic salary
125% of basic salary
£666,250 (+2.5%)
£325,000 (+8.3%)
506%
None
16.6%
Annual bonus for 2018 (pages 91 and 92)
n/a
Bonus opportunity remains at 100% of basic salary.
Profit before tax: 40% weighting
Operating margin: 20% weighting
Legal completion profile: 20% weighting
Customer satisfaction: 20% weighting
The balance of financial and non-financial metrics
has been adjusted and operating margin and legal
completion profile measures have been introduced
to sit alongside the profit before tax and customer
satisfaction measures to ensure focus on strong
operational delivery.
LTIP awards for 2018 (page 92)
n/a
200% of basic salary
TSR: 25% weighting
ROCE: 25% weighting
EPS: 25% weighting
Customer satisfaction: 25% weighting
125% of basic salary
75% of basic salary on
an exceptional basis
linked to cash target
(December 2018)
and capital employed
(2019 and 2020).
80 | Our governance
Remuneration report The link between remuneration and strategy
As set out in the Strategic Report, the Group has a clear set of strategic priorities designed to drive the business towards medium term
targets and to enhance shareholder value. These priorities include people satisfaction, customer satisfaction, a healthy and safe working
environment, and enhanced shareholder returns through increased profitability, ROCE and total shareholder return. Our medium term
targets, to be achieved by 2020, include “4 Star” customer satisfaction (measured by the Home Builders Federation survey score), 4,000
completions per annum, a 23% gross margin, administration expenses of no more than 5% of revenue, a three and a half to four year
land bank, delivery of a minimum of £180 million net cash from balance sheet restructuring, and delivery of circa 25% ROCE via a focus
on profitability and balance sheet optimisation. Underlining its commitment to increasing the efficiency of the balance sheet, the Group has
announced its intention to return surplus capital to shareholders in the form of special dividends totalling £180 million in the three years
to 2020.
The link between remuneration and the strategic priorities and medium term targets has been carefully considered by the Committee,
including the importance of driving behaviours that underpin the culture of the business and enable it to succeed. Our medium term targets
are supported and progress measured by reference to the Group’s reported KPIs of pre-tax profit, operating margin, net cash, ROCE,
earnings per share, private and affordable completions, the HBF customer satisfaction score, plots added to the land bank, and involuntary
staff turnover, the majority of which feature in the Group’s incentive schemes.
Annual bonus arrangements link to the Group’s near term strategic priorities and, for 2018, the Committee selected operating margin
and legal completion profile measures to sit alongside the profit before tax and customer satisfaction performance measures. Margin
improvement is critical to achievement of circa 25% ROCE by 2020 and the legal completion measure will help support a more controlled
phasing of completions and assist in managing capital employed.
The LTIP takes a longer term perspective and 2017 awards saw the introduction of the HBF customer satisfaction survey score as a
performance measure, in addition to the financial and share price performance measures of relative total shareholder return, earnings per
share and ROCE. The 2018 awards will use the same performance measures, with customer satisfaction reducing from one third to one
quarter of the award and the usual financial and share price based metrics being used for the balance.
Balance sheet optimisation and reduction in capital employed, creating the potential to return capital to shareholders, is incentivised across
all levels of senior management via the Project 200 Incentive Plan. The CEO and GFD do not participate in the Plan, although the same
measures and targets will be used to determine how much of the GFD’s exceptional 2018 LTIP award (of 75% of basic salary) will vest.
Key remuneration decisions during 2017
During 2017, the Committee agreed severance terms for the former CEO and agreed remuneration arrangements for the Interim CEO and,
subsequently, for the new CEO, including the granting to him of share awards following their approval at a General Meeting. It set targets
for the 2017 annual bonus (shown on page 84) and approved 2016 bonus payments. It also set targets for and approved LTIP awards made
in 2017 and approved the level of vesting for the 2014 LTIP awards. Malus and clawback provisions for incentive awards were strengthened
and a two year post vesting holding period for LTIP awards was introduced, both from 2017 onwards. The Committee also established the
Project 200 Incentive Plan and granted awards to senior management, excluding the executive directors. A consultation with shareholders
took place in early 2018 as to the participation of the Group Finance Director in the Project 200 Incentive Plan. Having listened to the views
of shareholders and considered the outcome of the consultation, the Committee decided that it would not be appropriate to submit the
Plan for shareholder approval and would instead grant an exceptional award under the LTIP to the GFD at 200% of basic salary, with the
intention that the GFD be motivated to support the delivery of the balance sheet optimisation programme via the additional element above
125% of basic salary being measured against the Project 200 Incentive Plan cash generation and capital employed metrics.
The Committee also completed the 2018 remuneration review, which included consideration of the link between executive remuneration
and pay and employment conditions throughout the Group (including the general proposals for staff for 2018).
Bovis Homes Group PLC | 81
Our governance Implementation of remuneration policy for the year ended 31 December 2017
Single figure of executive directors’ remuneration (audited)
The following table reports a single figure for total remuneration for each executive director who served during the 2017 financial year.
David Ritchie
Greg Fitzgerald
Earl Sibley
(resigned 09 January 2017)
(appointed CEO 18 April 2017)
(appointed GFD 16 April 2015)
Base salary
Benefits (2)
Annual bonus
Long Term Incentives (3)
Sub-total
Pension (4)
Other – pension salary supplement (5)
2017
£000
2016
£000
13
550
-
-
-
13
13
2
18
55
(6) 278
901
76
75
2017
£000
2017
£000
455
(1) 339
1
(7) 829
n/a
1,285
-
91
13
(8) 258
-
610
51
-
661
2016
£000
275
18
37
n/a
330
41
-
371
Total remuneration
28
1,052
1,376
Notes:
(1) Earl Sibley was appointed Interim Chief Executive from 9 January to 18 April 2017 and received a temporary salary uplift to a rate of £450,000 per annum
whilst in this role.
(2) Taxable benefits include medical insurance and loan account balancing payment relating to membership of the Bovis Homes Regulated Car Scheme, plus
income tax and national insurance due on this payment
(3) The 2014 LTIP measured over the three year period to 31 December 2016 vested to the extent of 35.9% on 25 February and 19 August 2017. The 2015
LTIP measured over the three year period to 31 December 2017 will lapse in full.
(4) The single value for David Ritchie has been calculated as 20 times the increase in accrued pension during the year (net of inflation), less the director’s own
contributions. The single figure for Earl Sibley has been calculated as the employer’s cash contribution. Greg Fitzgerald was not a member of a pension
scheme during the year.
(5) David Ritchie received a non-bonusable and non-pensionable pension salary supplement. Greg Fitzgerald receives a non-bonusable and non-pensionable
pension salary supplement.
(6) This is the actual value delivered under the 2014 LTIP calculated using the share price on the vesting date (775.5 pence on 25 February 2017 and 1,002
pence on 19 August 2017) and includes 4,518 notional dividend shares. Last year’s report included an estimate in respect of the vesting value of the 2014
LTIP (based on the average share price over the last quarter of 2016 of 814.66 pence) as the award had not vested at the date of the report.
(7) The bonus arrangement for Greg Fitzgerald was approved by shareholders (for 2017 only) at the General Meeting held on 2 May 2017. It has been
determined by the Committee’s assessment of his leadership of the review of strategy and will be paid entirely in shares, to be released in April 2020 and
subject to continued employment until April 2019. The value is calculated using the share price on the vesting date (1,079.0 pence on 23 February 2018).
(8) The bonus for Earl Sibley as Group Finance Director was assessed on the reported performance with profit before tax and ROCE performance adjusted for
the total exceptional items of £6.8 million (relating to bid defence costs of £2.8 million and restructuring costs of £4 million) in order to ensure consistency
with the basis on which the original targets were set. The total outturn for this element of bonus against the performance targets was 58.6%, applied
to a pro-rated salary of £350,000 for the full year. As explained on page 84 in recognition of his exceptional contribution as Interim CEO, the Committee
determined to exercise its discretion to award him an additional bonus of 15% of his pro-rated salary. £36.4k of the total bonus will be delivered in shares,
deferred for two years.
Greg Fitzgerald is non-executive Chairman of Baker Estates Limited, for which he received no fee during the year, and non-executive
Chairman of Ardent Hire Solutions Limited, for which his personal service company receives fees of £115,000 per annum. Earl Sibley does not
currently hold any external directorships.
82 | Our governance
Remuneration report
The following table shows the remuneration for the non-executive directors who served during the 2017 financial year.
Non-executive directors
Ian Tyler
Alastair Lyons
Chris Browne
Ralph Findlay
Nigel Keen (appointed 15/11/16)
Mike Stansfield (appointed 28/11/17)
Total
Salary / fees
£000
2017
170
79
49
58
49
4
2016
170
74
46
54
6
-
409
350
Annual bonus payment in respect of 2017
At the General Meeting held on 2 May 2017, shareholders approved, for 2017 only, an annual bonus of up to 100% of base salary for
Greg Fitzgerald payable in shares on the third anniversary of his date of appointment (“2017 Bonus”). The 2017 Bonus is in lieu of his
participation in the 2017 annual bonus and was to be determined by the Committee’s assessment of his leadership of the review of
strategy and structure, ensuring his focus on the priorities for shareholders, in the period from his appointment to 31 December 2017, (see
page 86 for further information, including how the number of shares was calculated). The Committee considered Greg’s achievement since
taking the role of CEO in April 2017 to have been exceptional. In less than nine months he had achieved a full operational turnaround
of the business with the development of our housing sites now well planned and efficiently managed to hand over quality product that
delights our customers. There has been a root and branch review of the overhead structure of the business with some functions now
outsourced. The appropriateness of all aspects of the balance sheet has been examined with the land bank reduced commensurate with
a revised forward build strategy, stock and work-in-progress managed much more efficiently, and non-contributing assets earmarked for
disposal, and in many cases, sold by the end of the year. The business’ regional operating structure has been reassessed, along with its
management, whilst site management, and the terms we offer, has been reviewed with the aim of our attracting and retaining the best in
the industry. As evidence of his achievement the Company delivered the operating and financial outturn that had been projected for 2017
with strong internal discipline and the business well positioned to show further improvement in 2018. As a consequence the Committee
determined that Greg’s 2017 Bonus should vest in full with effect from 31 December 2017. The shares will be released on 18 April 2020,
subject to his continued employment until 18 April 2019.
The maximum opportunity for the Group Finance Director for the year ended 31 December 2017 was 100% of salary, unchanged
from previous years. Provisions that enable the recovery of sums paid (clawback) were strengthened for 2017 onwards, as set out in the
policy table.
A breakdown of the performance against the measurement criteria is shown below. Focussing on the need for the Group to reset the
business during the year and drive operational priorities, the Committee adjusted the balance of financial and non-financial metrics from
70%:30% for 2016 to 50%:50% for 2017. The Committee then agreed that an operational gateway would apply to the Home Builders
Federation (“HBF”) survey score customer satisfaction measure, so that at least 70% customer satisfaction was achieved before either of
the financial measures could pay out. The HBF survey year runs from October to September and, following the operational difficulties at the
end of 2016, the Committee decided that measurement for the 2017 bonus should run from February to September 2017 to provide an
appropriate window and level of incentive to drive improvement. A quantifiable measure was also introduced for build programme delivery,
to place operational focus on controlled delivery of quality homes in accordance with build programme targets. In addition, the Committee
agreed that, should above target performance be achieved for the financial measures, payment would be in the form of shares for the
above target element, with a two year holding period.
All targets were set at the beginning of April 2017 following the fundamental review of the Group’s operational processes and controls.
Bovis Homes Group PLC | 83
Our governance
Measure
Financial measures (50%)
Profit before tax
(before exceptional items of £6.8m)
ROCE
Non-financial measures (50%)
Customer satisfaction (HBF survey score)
(for legal completions between 1 February and
30 September 2017 and to reach at least 70%
before either financial measure can pay out)
Build programme delivery
(achievement of monthly and cumulative build
programme for foundations and roofs between
March and December 2017)
Weighting
(as a % of maximum)
Threshold
On target
Stretch
Outcome and
award achieved
(% of maximum)
20%
30%
20%
0% of
maximum
£120.0m
0% of
maximum
12.2%
50% of
maximum
£125.0m
50% of
maximum
12.8%
100% of
maximum
£131.25m
100% of
maximum
14.1%
On target is
threshold
75%
50% of
maximum
85%
100% of
maximum
85%
£120.8m
(1.6%)
13.7%
(25.4%)
76.3%
(2.6%)
20%
Target foundations: 2,594
Foundations: 3,254
Target roofs: 3,261
Individual performance
10%
Assessed against the achievement of
defined individual objectives
Total bonus for Group FD (% salary)
Roofs: 3,491
(20.0%)
(9.0%)
58.6%
Earl Sibley was set the following personal objectives for 2017, designed to support the re-setting of the business and driving operational
improvements through cost efficiencies, more effective build processes and improvements in quality:
• In the Interim CEO role, to steer the Group through uncertain times
• To develop a clear strategy for the Group, working with the CEO
• To review and ensure consistency of reporting across the Group
• To drive operational changes to deliver balance sheet efficiency from working capital implementing a defined list of projects
• To support Group-wide cost reduction initiatives across both construction costs and overheads, with a target overhead of 5%
As regards Earl’s achievement against his personal objectives as Group Finance Director the Committee considered that Earl had performed
very strongly making a considerable contribution to the rapid and effective turnaround in the Group’s performance. Alongside Greg Fitzgerald
he had been instrumental in developing the turnaround strategy launched in September 2017 which had been well received recognising its
relevance and clarity. Consistency of reporting had much improved across the group whilst Earl had played a leading role in reducing capital
employed both as a principal leader educating and reinforcing the change of mindset, but also himself taking charge of many of the specific
cash initiatives. The Group is now well placed to achieve its targeted overhead of 5% with Earl again leading on many of the Group-wide cost
reduction initiatives. Without Earl’s contribution the Committee felt that the Group would not have achieved the progress it had during the
year and awarded him 90% of the award designated to these objectives.
For Earl’s contribution as interim CEO for the three months or so between David Ritchie’s resignation and Greg Fitzgerald’s appointment the
Committee considered that he had surpassed expectations of what could be achieved against a very difficult backdrop of the Group having
fallen significantly short of market expectations for 2016 and also being in receipt of two unsolicited approaches. With enormous energy and
strong leadership he took personal charge of resolving the issues the business had created for its customers in the run up to the end of 2016, at
the same time focussing management on reassessing all aspects of its operations, in particular its build quality and customer service, to develop
a programme of work that would address past deficiencies and reset the business to deliver quality houses efficiently and cost-effectively.
Earl’s achievement as interim CEO created the platform on which Greg Fitzgerald then built so successfully once he joined the business.
The Committee considered that recognising this achievement as just one of five personal objectives gave insufficient credit to what he had
contributed to the business and, therefore, determined to use its discretion to award him an additional bonus of 15% of salary in this regard.
Executive director
Earl Sibley
Maximum bonus
% of salary
Target bonus
% of salary
Actual bonus
% of salary (1)
Total 2017
bonus £000
100
50
73.6
258
(1) Pro-rata salary for the year of £350,000.
Bovis Homes Group Long Term Incentive Plan
Long term incentive awards are made in the form of performance shares or nil-cost options under the Bovis Homes Group Long Term Incentive
Plan which was approved by shareholders at the 2010 Annual General Meeting. Each award is made subject to the achievement of performance
criteria as set out below and will ordinarily vest after three years. A two year holding period following vesting was introduced for the 2017
awards onwards, which extends to five years the time between awards being granted and when they can be exercised. Provisions that enable
the withholding of payment or the recovery of sums paid (malus and clawback) were also strengthened for 2017 awards onwards. Discretions
available to the Committee contained in the LTIP rules are set out in the policy table on page 96 and also in the exit payments policy in the
remuneration policy, available on our website.
84 | Our governance
Remuneration report
Awards vesting in respect of 2017
The LTIP awards made in 2015 were measured over the three year period to 31 December 2017 and will lapse in full. One third of the award was
measured against each of EPS performance, TSR performance against an index of the UK’s leading housebuilders, and ROCE performance.
The threshold EPS target was 320p and the maximum target was 400p measured on a cumulative three year basis. Absolute cumulative EPS over
the three year performance period was 253.5p.
The threshold TSR target was performance equal to the annualised median of the index and the maximum target was performance equal to the
annualised median of the index, plus 10%. Actual TSR was 57% which was below the median of the index of 95%.
The threshold ROCE target was 19.4% and the maximum target was 23.3% measured in the third year of the performance period (2017). Actual
ROCE in 2017 was 13.7%.
Awards granted during 2017 (audited)
For the 2017 awards, the Committee decided to introduce customer satisfaction as a performance measure, using the HBF customer
satisfaction survey score rating, alongside the financial and share price performance measures. The financial and share price measures
comprise two thirds of awards and the customer satisfaction measure, which is independently and objectively assessed, makes
up one third.
An award of 111,972 shares was made to Greg Fitzgerald at 200% of basic salary (in accordance with the circular to shareholders dated
7 April 2017) at a grant price of £11.61 on 8 September 2017.
The award is subject to a three year performance period ending on 31 December 2019 and exercisable in 2022, following a two year
holding period, as follows:
Executive director
Greg Fitzgerald
Type of award
Number
of shares
awarded
Face value
of award
£000
% of face value
that would vest at
threshold
Performance share award
111,972
1,300
20
An award of 49,342 shares was made to Earl Sibley at 125% of basic salary at a grant price of £7.60(1) (the closing middle market share
price on 21 February 2017) on 8 September 2017, subject to a three year performance period ending on 31 December 2019 and exercisable
in 2022, following a two year holding period, as follows:
Executive director
Earl Sibley
Type of award
Number
of shares
awarded
Face value
of award
£000
% of face value
that would vest at
threshold
Performance share award
49,342
375 (1)
20
(1) The Group’s usual practice is to make the main grant of awards for a current year following the announcement of the results for the preceding year. The
granting of the 2017 awards was delayed from 21 February 2017, being the day following the announcement of the 2016 results, pending the completion
of the strategic and structural review, and the subsequent determination of performance measures and targets by the Committee. As circumstances delayed
the granting of awards until 8 September 2017, the Committee determined to use the closing middle market share price on 21 February 2017 for the grant
to all employees (including the GFD but excluding the CEO), as would have been the case had the awards been granted in accordance with usual practice.
Therefore for the GFD, the face value of the shares on the date of award was £572,860.
The performance measures for all 2017 awards are Customer Satisfaction (33.3%), TSR (22.2%), EPS (22.2%) and ROCE (22.2%). 6.67% of the
total award vests for achieving threshold performance for any of the financial and share price performance measures. The proportion of the total
award relating to the customer satisfaction measure lapses in its entirety should the performance target not be achieved.
The performance targets are:
• Customer satisfaction – HBF customer satisfaction rating for the period October 2018 to September 2019 to be at least “4 Star”
(80% to 89.9%).
• TSR – threshold performance equal to the annualised median of the index and maximum performance equal to the annualised median
of the index, plus 10% (unchanged from the prior year, with the exception of the addition of Countryside Properties PLC to the
comparator group).
• EPS – threshold performance at cumulative EPS of 238 pence and maximum performance at cumulative EPS of 280 pence.
• ROCE – threshold performance at 18.4% and maximum performance at 23.4%, both as measured in the third year of the
performance period (2019).
The 2017 constituents of the TSR index, which may be subject to change, are as listed below:
TSR comparator group
Barratt Developments plc
Persimmon plc
Bellway plc
Redrow plc
The Berkeley Group plc
Crest Nicholson Holdings plc
Taylor Wimpey plc
Countryside Properties PLC
Bovis Homes Group PLC | 85
Our governance
Greg Fitzgerald - 2017 Bonus and Recruitment Awards (audited)
Following approval at the General Meeting held on 2 May 2017, G P Fitzgerald was granted a conditional right to acquire up to 76,786 ordinary
shares of the Company (the “2017 Bonus”), in lieu of participation in the 2017 Bonus Scheme, and a conditional right to acquire 76,786 ordinary
shares of the Company (the “Recruitment Award”) to recompense him for relinquishing management of certain investments in order to take up
the role as Chief Executive. Each award represented 100% of base salary and the number of ordinary shares was determined by the share price
on 4 April 2017 of £8.465, being the dealing day before the appointment was announced. Provisions that enable the withholding of payment or
the recovery of sums paid (malus and clawback) apply to the awards. Both awards will have the benefit of dividend equivalents.
Executive director
Greg Fitzgerald
Number of
shares
awarded
Face value at
date of grant
£000
% of face
value that
would vest at
threshold
Type of award
2017 Bonus award
76,786
650
n/a
The 2017 Bonus is determined by the Remuneration Committee’s assessment of his leadership of the review of strategy and structure,
ensuring his focus on the priorities for shareholders, in the period from his appointment to 31 December 2017. The Committee agreed that
the review of strategy and structure had been successfully completed and that the award should vest with effect from 31 December 2017
and be payable on the third anniversary of appointment, being 18 April 2020, subject to G P Fitzgerald remaining in employment on the
second anniversary of appointment.
Executive director
Greg Fitzgerald
Number
of shares
awarded
Face value at
date of grant
£000
% of face
value that
would vest at
threshold
Type of award
Recruitment award
76,786
650
n/a
The Recruitment Award is subject to a performance condition and will only deliver shares if the Company’s total shareholder return over the
period from 4 April 2017 to 31 December 2018 is at least equal to the median of the TSR comparator group applicable to awards granted
under the LTIP in 2017. TSR was calculated on 4 April 2017 at the start of the performance period and will be averaged over the three
month period prior to the end of the performance period. The recruitment award will vest on 31 December 2018 and be payable on the
third anniversary of appointment, being 18 April 2020, subject to G P Fitzgerald remaining in employment on the second anniversary
of appointment.
Historical LTIP awards
The table below summarises the historical long term incentive awards made to the executive directors.
Award size (% salary)
Performance criteria
Year of grant
Performance period
(CEO)
(GFD)
Customer
satisfaction
TSR
EPS
ROCE
Percentage of
award vesting
2014
2015
2016
2017
01/01/2014 – 31/12/2016
150%
33.3%
33.3%
33.3%
35.9%
01/01/2015 – 31/12/2017
150%
*150%
33.3%
33.3%
33.3%
0%
01/01/2016 – 31/12/2018
125%
33.3%
33.3%
33.3%
Ongoing
01/01/2017 – 31/12/2019
200%
**125%
33.3%
22.2%
22.2%
22.2%
Ongoing
*As announced in the 2016 Directors’ Remuneration Report, this level of award was granted on an exceptional basis.
**As explained on page 85, award size was calculated based on the closing middle market share price on 21 February 2017, which was £7.60 per share.
Pensions
David Ritchie was a senior executive member of the Bovis Homes Pension Scheme (“BHPS”) and ceased to be a director on 9 January 2017.
The BHPS is a contributory funded, defined benefit scheme, approved by HMRC. He received a pension allowance of 20% of salary and
some or all of this allowance was used in relation to his membership of the BHPS, to the extent that it remained beneficial in light of new
pension legislation. The balance was paid as a non-bonusable and non-pensionable salary supplement.
Earl Sibley is a member of the Bovis Homes Group Personal Pension Plan (“GPP”) and the Company’s contribution is 15% of his base salary.
Greg Fitzgerald was not a member of a pension scheme during the year and receives a pension salary supplement of 20% of his
base salary.
There are no special early retirement or early termination provisions for executive directors, except as noted in the exit payments policy.
Any new appointments would include eligibility for membership of the GPP, unless the appointee was already a member of the BHPS.
86 | Our governance
Remuneration report
Directors’ pension accruals (audited)
Executive director
Employer
contributions
to pension
scheme during
the year
£
Director
contributions
to pension
scheme during
the year
£
Accumulated
total accrued
pension at
31 Dec 2017
£ p.a.
Increase in
accrued pension
during the year
(net of inflation)
£ p.a.
Transfer value
of accrued
pension at
31 Dec 2017 (1)
£
Single value at
31 Dec 2017(3)
£
David Ritchie (resigned 9 January 2017)
1,181
191
74,669
648
1,310,985
12,778
Notes:
1. The transfer value has been calculated using the transfer basis introduced in July 2015.
2. The accrued pension figures above are the aggregate pension resulting from two periods of service. The first period relates to service up to 5 April 2011 and
the second period relates to service from 6 April 2011 to 9 January 2017.
3. The single value has been calculated as 20 times the increase in accrued pension during the year (net of inflation), less the director’s own contributions.
Payments for loss of office
David Ritchie resigned as Chief Executive and as an executive director of the Company with effect from 9 January 2017 and his
employment with the Group ended on 28 February 2017. Remuneration arrangements in respect of his departure were determined by
the Committee in line with his service contract and the Company’s remuneration policy and were disclosed in the 2016 Directors’
Remuneration Report.
Directors’ shareholdings and share interests (audited)
Directors’ beneficial share interests
The directors’ interests in the share capital of the Company are shown below. All interests are beneficial.
31 Dec 2017
31 Dec 2016
Shares under
the LTIP
(shares
subject to
performance
conditions)
SAYE options
(options
subject to
continuous
employment)
Shares under
the LTIP
(shares
subject to
performance
conditions)
SAYE options
(options
subject to
continuous
employment)
Ordinary
shares
Share
Options
Ordinary
shares
Share
Options
Executive directors
Greg Fitzgerald (appointed 18/04/17)
365,694
Earl Sibley
David Ritchie (resigned 9/01/17)
Non-executive directors
Ian Tyler
Alastair Lyons
Chris Browne
Ralph Findlay
Nigel Keen (appointed 15/11/16)
Mike Stansfield (appointed 28/11/17)
5,866
-
2,185
25,350
1,026
2,687
-
-
-
-
-
-
-
-
-
-
-
265,544
-
-
121,597
4,213
270
13,300
- 210,628
-
-
-
-
-
-
-
-
-
-
-
-
2,090
25,350
1,026
-
-
-
-
-
-
-
-
-
-
-
-
-
-
72,255
4,213
305,833
3,988
-
-
-
-
-
-
-
-
-
-
-
-
There were no changes in the holdings of ordinary shares of any of the directors between 31 December 2017 and 1 March 2018 other
than the normal monthly investment in partnership shares through the Bovis Homes Group Share Incentive Plan.
The directors’ interests in share options and awards under the Long Term Incentive Plan are detailed on page 88. There were no changes in
the holdings of share options and awards under the Long Term Incentive Plan between 31 December 2017 and 1 March 2018.
Bovis Homes Group PLC | 87
Our governance
Shareholding guidelines
Guidelines have been approved for executive directors in respect of ownership of Bovis Homes’ shares. The Board expects executive
directors to retain 100% of the net value derived from the exercise of Long Term Incentive Plan awards as shares, after settling all costs
and income tax due, until such time as executive directors hold shares with an historical cost equal to basic annual salary and, from 2017
onwards, the CEO holds shares with an historical cost equal to twice basic annual salary.
Executive director
Greg Fitzgerald
Earl Sibley
Shareholding
at 31 Dec
2017
Historical
acquisition
cost
Salary at
1 Jan 2018
%
shareholding
achieved
Shareholding
guideline
365,694
£3,371,274
£666,250
506%
5,866
£54,027
£325,000
16.6%
200%
100%
Greg Fitzgerald met the shareholding guidelines during 2017 by acquiring a significant number of shares and now holds shares with a
historical cost equal to five times basic annual salary. Earl Sibley also acquired shares and has progressed towards meeting the shareholding
guidelines during 2017.
Directors’ interests in Long Term Incentive Plan shares
Interest
as at
31 Dec
2016
Interest
as at
31 Dec
2017
Value of
shares at
date of award
(£000)
Vesting and
exercised
in year
Lapsed
in year
Executive director
Award date
Vesting date
Greg Fitzgerald
02/05/17
31/12/17
02/05/17
31/12/18
08/09/17
08/09/20
-
-
-
*76,786
*76,786
650
650
111,972
1,300
Expiry date
18/04/20
18/04/20
08/09/27
-
-
-
Earl Sibley
18/08/15
18/08/18
33,215
33,215
24/02/16
24/02/19
39,040
39,040
375
344
08/09/17
08/09/20
-
49,342
**375
33,215
18/08/25
-
-
24/02/26
08/09/27
-
-
-
-
-
-
Market
value at
vesting
(£000)
Gain on
exercise
(£000)
Shares
retained
on
exercise
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
David Ritchie
26/02/13
26/02/16
46,190
25/02/14
25/02/17
50,598
19/08/14
19/08/17
27,256
24/02/15
24/02/18
88,093
24/02/16
24/02/19
93,696
-
-
-
-
-
450 ***52,643
-
26/02/23
433
404 27,900
465 ***21,091
32,427
25/02/24
164
204 11,158
232 ***11,386
17,468
19/08/24
114
128
6,023
825
825
-
-
88,093
24/02/25
93,696
24/02/26
-
-
-
-
-
-
* 2017 Bonus award and Recruitment Award granted to Greg Fitzgerald following approval at a General Meeting held on 2 May 2017.
** As explained on page 86 the award was calculated based on the closing middle market share price on 21 February 2017, which was £7.60 per share.
*** David Ritchie’s 2013 and two 2014 award exercises included 6,453, 2,920 and 1,598 dividend equivalent shares respectively.
Directors’ interests in share options
Executive director
Date of grant
Scheme
Interest as at
31 Dec 2016
Granted
in year
Lapsed
in year
Exercised
in year
Interest as at
31 Dec 2017
Exercise price
per share
Option exercise
period
Earl Sibley
24/03/2016
David Ritchie
02/05/2014
SAYE
SAYE
4,213
1,882
-
-
-
1,882
24/03/2016
SAYE
2,106
-
2,106
-
-
-
4,213
712.00 06/21 – 12/21
-
-
796.95 06/19 – 12/19
712.00 06/21 – 12/21
The Save As You Earn (SAYE) options were granted at a 10% discount (2014 options) and a 20% discount (2016 options) to the prevailing
market price on the date of grant. There was no payment required to secure the grant of any share options. There was no change in the
terms and conditions of any outstanding options granted under the SAYE Scheme during the financial year. Share options held in the
SAYE Scheme, which are not subject to performance conditions, may under normal circumstances be exercised during the six months after
maturity of the savings contract.
88 | Our governance
Remuneration report
Total Shareholder Return performance graph (1)
e
c
n
a
m
r
o
f
r
e
P
R
S
T
1,200
1,100
1000
900
800
700
600
500
400
300
200
100
0
1,127
Bespoke home construction index (2)
FTSE 250 index
Bovis Homes Group PLC
731
698
406
401
327
312
348
272
(1) This graph illustrates nine-year TSR performance
and therefore does not represent the period under
which the Long Term Incentive Plan is measured
(2) Median TSR growth of the constituents of the
bespoke index. Index consists of FTSE 350 home
construction companies as at 31 December 2008
(Barratt Developments, Bellway, The Berkeley
Group, Persimmon, Redrow, Taylor Wimpey)
Source - DataStream
509
288
255
402
278
230
252
212
155
156
149
120
184
128
105
173
170
131
Dec 2008
Dec 2009
Dec 2010
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015 Dec 2016 Dec 2017
As required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended), the above
graph shows the Total Shareholder Return of an ordinary share held in Bovis Homes Group PLC over the last nine financial years, compared
to the FTSE 250 index and the median of the FTSE 350 home construction companies (as listed at 31 December 2008) over the same
period. As a constituent of the FTSE 250 operating in the home construction sector, the Committee considers both these indices to be
relevant benchmarks for comparison purposes.
The middle market price of the Company’s shares at 31 December 2017 was £11.72 (2016: £8.20). During the year ended 31 December
2017 the share price recorded a middle market low of £7.60 and a high of £12.13. As at the date of this report the share price stood at
£10.685.
Total CEO remuneration
Single figure total £000
518
1,016
836
1,315
1,440
1,596
1,505
1,029
1,376
Annual bonus against maximum %
Long Term Incentive Plan vesting against maximum %
0
31
100
82.4
84.2
97.8
88.7
59.8
10
31
0
50
50
66.7
66.7
35.9
100
n/a
2009
2010
2011
2012
2013
2014
2015
2016
2017
Note: Columns for 2009 to 2016 relate to David Ritchie and that for 2017 relates to Greg Fitzgerald.
Change in remuneration of CEO
The table below sets out the percentage change in the remuneration awarded to David Ritchie between 2016 and 2017 compared to the
average percentage change for employees as a whole.
Executive director
David Ritchie (resigned 9/01/17)
Employees as a whole
*Excludes sales and build functions which have tailored incentive schemes.
Base salary
Benefits
Annual bonus
2.5%
0%
n/a
9.04%
0%
*211%
Bovis Homes Group PLC | 89
Our governance
David Ritchie
Chief Executive
6%
28%
26%
40%
47%
10%
20%
23%
1,037
Maximum
In line with
expectations
18%
82%
Minimum
595
1,757
Maximum
963
Jonathan Hill
Group Finance Director
4%
30%
29%
37%
7%
51% 24%
18%
578
In line with
expectations
13%
87%
Minimum
333
0
500
1000
£000s
1500
2000
0
500
1000
£000s
1500
2000
Salary and benefits
Pensions
Bonus
LTIP
Relative importance of spend on pay
The graph below details Group wide expenditure on pay for all employees (including variable pay, social security, pensions and share based
payments) as reported in the audited financial statements for the last two financial years, compared with profit before tax and dividends
paid to shareholders.
200
150
m
£
100
50
0
Notes:
154.7
114.0
70.7
63.5
55.4
60.4
Total spend
on pay
Profit before
tax
Dividends
paid
2016
2017
• Total spend on pay in 2016 was £63.5 million and in 2017 was £70.7 million, representing an increase of 11.3%.
• Profit before tax in 2016 was £154.7 million and in 2017 was £114.0 million, representing a reduction of 26.3%.
• Dividends paid to shareholders totalled £55.4 million in 2016 and £60.4 million in 2017, representing an increase of 9.0%.
Implementation of remuneration policy for the year ending 31 December 2018
Changes in the way that the remuneration policy will be implemented in 2018 versus 2017 are as follows:-
• Base salary increases,
• In the annual bonus, the addition of operating margin and legal completion profile measures, (to sit alongside the profit before tax
and customer satisfaction measures),and the removal of ROCE, build delivery and individual performance measures, together with a
rebalancing of the weightings.
• For the LTIP, the financial measures will comprise at least three quarters of awards, as opposed to two thirds, and the HBF Customer
Satisfaction rating will make up one quarter. The TSR performance target will be adjusted so that maximum performance is more closely
aligned with upper quartile performance of sector peers. The award for the Group Finance Director will include an element linked to the
Project 200 Incentive Plan performance measures. These consist of a cash target to be achieved by 31 December 2018 and net capital
employed targets to be maintained over 2019 and 2020, calculated based on the closing position as at 31 December 2018. The cash
target range is currently confidential, although the threshold is £190 million, and the targets will be fully disclosed in our 2019 and 2020
directors’ remuneration reports.
Executive directors’ base salaries and benefits
The salaries of the executive directors with effect from 1 January 2018 were as follows
Executive directors
Greg Fitzgerald (appointed 18/04/17)
Earl Sibley
Position
2018 base salary
CEO
GFD
£666,250
£325,000
% increase
from 2017
2.5%
8.3%
The salary of Greg Fitzgerald, the Chief Executive, was increased by 2.5%, in line with the wider employee population.
The Committee carefully considered the increase for Earl Sibley, in line with the phased approach set out in the 2015 Remuneration Report,
and on which shareholders were previously consulted. In summary, Earl Sibley was appointed in April 2015 on a salary of £250,000 with
the expectation that his salary would be increased to an appropriate market rate for a strongly performing experienced individual over the
first three years of service, subject to individual performance and increased experience. In view of the ongoing strong performance delivered
by Earl Sibley, his pace of development, increased level of experience and his contribution to the Group, including a period as Interim Chief
Executive, the Committee decided to progress his salary by 8.3% for 2018, following the increase of 9.1% for 2017 and 10% for 2016.
This is the final stage of the phased approach and the Committee considers that it has contributed to his being fully motivated to meet the
challenges in continuing to deliver operational improvement and the Group’s strategy to the benefit of shareholders.
An allowance of just over 3% of salary roll was provided for general staff increases.
Benefits will continue on the same basis as for 2017.
90 | Our governance
Remuneration report
Approach to annual bonus
Following the regular annual review,the Committee determined that, having focussed particularly in 2017 on operational delivery and
customer satisfaction, the annual bonus scheme for 2018 should be adjusted to align more with our medium term targets, whilst at
the same time maintaining focus on strong operational delivery and high levels of customer satisfaction. The Committee has, therefore,
adjusted the balance of financial and non-financial metrics from 50%:50% to 60%:40% and has introduced an operating margin measure
in place of the ROCE measure and a legal completion profile measure in place of the quantifiable build programme delivery measure. The
weightings for the performance measures have also been rebalanced. There is no change to quantum.
Measure
Profit before tax
ROCE
Operating margin
Financial measures
Customer satisfaction (HBF survey score)
Build programme delivery
Legal completion profile
Individual performance
Non-financial measures
2017 Weighting
(as a % of maximum)
2018 Weighting
(as a % of maximum)
20%
30%
n/a
50%
20%
20%
n/a
10%
50%
40%
n/a
20%
60%
20%
n/a
20%
n/a
40%
Margin improvement is seen as critical to achieving our medium term targets for both ROCE and operating margin and the legal completion
profile measure is designed to deliver more controlled phasing of completions across the year, and to drive a progressive build profile across
sites and operating efficiency. The profit measure will also link to the controlled phasing of activity across the year, as measured by the legal
completion profile measure, so that, should the pay-out for the legal completion measure be below 10%, the profit measure will be subject
to an equivalent reduction (e.g. the legal completion profile pays out 8%; the profit measure is reduced by 2%). The operational gateway
relating to the Home Builders Federation (“HBF”) survey score customer satisfaction measure continues to apply, such that at least 70%
customer satisfaction must be achieved before any of the bonus measures can pay out, as opposed to only the financial measures.
Provisions that enable the withholding of payment or the recovery of sums paid (malus and clawback) apply to the annual bonus in
circumstances of (i) a serious misstatement of results; (ii) an error in assessing a performance condition or in the information on which
the award was granted; (iii) serious misconduct; (iv) a material failure of risk management; (v) serious reputational damage; or (vi) any
other circumstances that the Committee considers to be similar in nature or effect. Malus can apply prior to the bonus payment date and
clawback can apply for a two year period thereafter.
Bovis Homes Group PLC | 91
Our governance The Committee has decided not to disclose the detail of performance targets in advance as they are considered commercially sensitive,
being closely indicative of the Group’s strategy, but will disclose them retrospectively in the 2018 annual remuneration report. The 2018
performance measures and weightings are described below.
Measure
Rationale / link to strategy
% weighting
Financial measures (60%)
Profit before tax
Explicitly ties reward to financial performance.
Operating margin
Non-financial measures (40%)
Legal completion profile
Challenges management to deliver and out-perform profit target,
with a link to the controlled phasing of completions.
Aligns the way the business is managed with interests of
shareholders in challenging management to increase operating
margin and hence profitability.
Improving build operating practices and delivering quality homes in a
phased completion profile is key to operational efficiency, customer
satisfaction, reputation and future success. Measured by delivery
against the legal completion profile agreed as part of the annual
business plan.
40%
20%
20%
Customer satisfaction
Quality of service is key to reputation and future success, both in
20%
terms of customer demand and achieved selling prices.
Measured by the HBF survey score for legal completions between 1
October 2017 and 30 September 2018.
Total opportunity
100%
Approach for Long Term Incentive Plan awards
The key features of the long term incentive arrangements (as outlined on page 85) are expected to remain the same as those for 2017.
The financial measures will comprise at least three quarters of awards, as opposed to two thirds, and the HBF Customer Satisfaction rating,
which is independently and objectively assessed, will make up the balance. The TSR performance target will be adjusted so that maximum
performance, intended to reflect upper quartile performance against an index of the UK’s leading housebuilders, is set at annualised
median of the index, plus 7.5%.
Provisions that enable the withholding of payment or the recovery of sums paid (malus and clawback) can apply in certain circumstances as
set out in the policy report. Malus can apply prior to the award vesting date and clawback can apply for a two year period thereafter.
A two year holding period following vesting extends to five years the time between awards being granted and when they can be exercised.
As noted on page 79, the Project 200 Incentive Plan was implemented for members of the executive management team during 2017. The
Plan has been designed to support our programme of balance sheet optimisation and reduction in capital employed which, in turn, will
create the potential to return capital to shareholders in the form of special dividends. The CEO does not participate in the Plan. However,
the Committee recognised that the Plan would require specific AGM approval to enable Earl Sibley to participate. Following extensive
consultation and having considered the views of shareholders, the Committee decided that it would instead make an exceptional award
of a further 75% of basic salary under the LTIP to incentivise Earl’s vital contribution as a leader in influencing the change of mindset the
Plan is designed to achieve and in taking charge of many of the specific cash initiatives that form part of the programme of balance sheet
optimisation and the Group’s strategy of achieving a material improvement in the Group’s Return on Capital Employed. Achievement
against this exceptional element will be entirely measured against the same cash generation and capital employed metrics as adopted
within the Project 200 incentive Plan. The exceptional award will only vest if at least £190m of additional cash is realised from specific
cash initiatives of the Group by the end of 2018. The specific cash target range is currently confidential and will be fully disclosed in the
2019 directors’ remuneration report. Additionally, the exceptional award will only vest if the lower levels of capital employed at December
2018 are maintained through the subsequent two balance sheet dates. The capital employed targets will be disclosed in the 2019 and
2020 directors’ remuneration reports and will be consistent with the Group’s objective of delivering circa 25% Return on Capital Employed
by 2020. Although sub-optimal from the Committee’s perspective in not aligning Earl with senior management below the Board via
participation in the Project 200 Incentive Plan, it considered the granting of an exceptional LTIP award justified given the potential to
enhance shareholder value through special dividends and an improved Return on Capital Employed.
92 | Our governance
Remuneration report Pensions
Pension arrangements (as outlined on page 86) will continue on the same basis as in 2017. The defined benefit scheme closed to future
accrual on 28 February 2018.
Non-executive directors’ remuneration
The fees for the non-executive director positions for 2018 are set out below (unchanged from 2017).
Role
Chairman fee
Deputy Chairman fee
Non-executive director base fee
Additional fees:
Audit Committee chair
Remuneration Committee chair
2017
2018
£170,000
£170,000
£70,000
£70,000
£49,000
£49,000
£9,000
£9,000
£9,000
£9,000
The fees for the Deputy Chairman and the other non-executive directors were increased to their current levels with effect from 1 January
2017, following a review which took into account competitive positioning, responsibilities, time commitment for the roles and the size and
complexity of the Company. The fees for non-executive directors will next be reviewed with effect from 1 January 2019.
Remuneration of senior management and other below board employees
In addition to responsibility for executive directors, the Committee is also involved in consideration of the remuneration arrangements for
the Executive Leadership Team below the Board, in conjunction with the Chief Executive. Alignment is delivered by ensuring that senior
management and executive directors participate in the same bonus and incentive schemes as far as possible, with similar performance
measures and targets.
The Remuneration Committee
Committee membership and meetings
All members of the Committee are independent non-executive directors who have no personal financial interest, other than as
shareholders, in the matters to be decided. Biographical details are provided on pages 58 to 59.
Name
Alastair Lyons (appointed Chairman 16/05/14)
Chris Browne
Ralph Findlay
Nigel Keen
Mike Stansfield
Date of
appointment
Role
Attendance
at meetings
01/10/2008
Chairman
01/09/2014
Member
07/04/2015
Member
15/11/2016
Member
28/11/2017
Member
11/11
10/11
11/11
10/11
1/1
The Committee met eleven times in 2017. In addition to the key activities and decisions mentioned in the introduction to this report, the
Committee reviewed the remuneration policy, approved the directors’ remuneration report for inclusion in the 2016 Annual Report and
reviewed feedback from shareholders and institutions, approved the vesting of 2014 CSOP options, approved the 2017 offer of the SAYE
scheme, and reviewed the Committee’s terms of reference. An external evaluation of the Committee’s performance during 2017 was
completed as part of the independent Board evaluation and it was found to be performing effectively and fulfilling its remit, but would
benefit from greater support from HR and more frequent advisor attendance at meetings.
The Committee starts its meetings without executive management present when it wishes to do so. During 2017, the Committee asked Ian
Tyler (Chairman), Greg Fitzgerald (Chief Executive), and Earl Sibley (Group Finance Director) to attend meetings and assist its discussions.
This excluded matters connected to their own remuneration, service agreements or terms and conditions of employment. The Committee
takes care to recognise and manage conflicts of interest when receiving views from executive directors or senior management and no
director or senior executive is involved in any decisions regarding their own remuneration.
The Group Company Secretary acts as secretary to the Committee.
Bovis Homes Group PLC | 93
Our governance
Advisers to the Committee
Deloitte LLP were appointed advisers to the Committee in August 2009. Deloitte provide independent advice on all aspects of executive
remuneration and attend Remuneration Committee meetings when invited by the Chairman of the Committee. The Committee reviews
the advice, challenges conclusions and assesses responses from Deloitte to ensure objectivity and independence. Deloitte did not provide
any other services to the Company during the period. Deloitte are a founder member of the Remuneration Consultants Group and have
signed the voluntary Code of Practice for remuneration consultants. The fees paid to Deloitte for services provided in 2017 were
£56,485 (2016: £26,160).
Shareholder voting at the 2017 AGM and GM
At the AGM held on 2 May 2017, shareholder proxy voting on the directors’ remuneration report for the year ended 31 December 2016 and
directors’ remuneration policy was as follows:
Resolution
For
%
Against
%
Total votes
Withheld (1)
Directors’ remuneration report 2016
93,649,076
90.13
10,252,847
9.87
103,901,923
4,338
Directors’ remuneration policy
95,683,008
97.05
2,911,577
2.95
98,594,585
5,311,610
Greg Fitzgerald’s Recruitment Award and 2017 Bonus were approved separately by shareholders at the General Meeting held on 2 May
2017 and shareholder proxy voting was as follows:
Resolution
For
%
Against
%
Total votes
Withheld (1)
Recruitment award and 2017 Bonus
90,030,489
86.88
13,589,988
13.12 103,620,477
3,186
(1) A vote withheld is not a vote in law and is not counted in the calculation of votes for and against.
The Company is committed to ongoing shareholder dialogue and seeks to understand any concerns investors may have. Should there be a
significant level of votes against resolutions relating to directors’ remuneration, the Company will seek to understand the reasons for this
and will set out any actions taken in response.
By order of the Board
Alastair Lyons
Chairman of the Remuneration Committee
1 March 2018
Note: This Directors’ Remuneration Report has been prepared in accordance with the requirements of Schedule 8 to the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 (as amended). The report also meets the relevant requirements of the Listing Rules of the Financial Conduct
Authority, and describes how the Board has complied with the principles and provisions of the UK Corporate Governance Code relating to remuneration matters.
Remuneration tables subject to audit in accordance with the relevant statutory requirements are contained in the annual remuneration report.
94 | Our governance
Remuneration report
The full remuneration policy is contained in the 2016 Annual Report and available at www.bovishomesgroup.co.uk.
Components of the remuneration framework for executive directors
The policy table below summarises the main components of the remuneration framework, a large proportion of which is performance related.
Fixed pay
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Not applicable.
Whilst we do not consider it appropriate
to set a maximum base salary level,
any increases will take into account the
individual’s skills, experience, performance,
the external environment and the pay of
employees throughout the Group.
Whilst generally the intention is to maintain
a link with general employee pay and
conditions, in circumstances such as
significant changes in responsibility or size
and scope of role or progression in a role,
higher increases may be awarded.
Thus, where a new director is appointed at
a salary below market competitive levels to
reflect initial experience, it may be increased
over time subject to satisfactory performance
and market conditions.
We do not consider it appropriate to set
a maximum benefits value as this may
change periodically.
Not applicable.
Base salary
Ordinarily reviewed annually.
To attract and retain high
performing talent required to
deliver the business strategy,
providing core reward for
the role.
The review typically considers competitive
positioning, the individual’s role,
experience and performance, business
performance and salary increases
throughout the Group.
Market benchmarking exercises are
undertaken periodically and judgement is
used in their application.
Benefits
To provide market competitive
benefits consistent with role.
Benefits typically include medical
insurance, life assurance, membership
of the Bovis Homes Regulated Car
Scheme for Employees or cash car
allowance, annual leave, occupational
sick pay, health screening, personal
accident insurance, and participation in
all employee share schemes (SAYE and
SIP). In line with business requirements,
other expenses may be paid, such as
relocation expenses, together with
related tax liabilities.
Pension
To attract and retain talent by
enabling long term pension saving.
Not applicable.
Executives joining the Group since January
2002 can choose to participate in a
defined contribution arrangement, or
may receive a cash equivalent. A salary
supplement may also be paid as part of a
pension allowance arrangement.
Executives who joined the Group
prior to January 2002 can continue to
participate in the defined benefit pension
arrangement, which is closed to new
members.
A pension allowance of up to 20% of base
salary may be paid. This may be taken
as a contribution to the Group Personal
Pension Plan, as a salary supplement, or a
combination of the two.
For executive directors who participate in
the Company’s defined benefit scheme,
to the extent that the annual value of
their participation is less than the pension
allowance, the balance may be taken as a
salary supplement.
Bovis Homes Group PLC | 95
Our governance Variable pay
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Annual bonus
To incentivise and reward the
delivery of near term business
targets and objectives.
Long Term Incentive Plan
(“LTIP”)
To incentivise, reward and
retain executives over the longer
term and align the interests of
management and shareholders.
The annual bonus scheme
offers a maximum
opportunity of up to 100%
of base salary. Achievement
of stretching performance
targets is required to earn
the maximum.
The maximum annual
award, under normal
circumstances, is as
follows:
• 150% of base salary for
the CEO.
• 125% of base salary for
the GFD.
In exceptional
circumstances an award
may be granted under the
LTIP rules up to 200% of
base salary.
The annual bonus scheme is a
discretionary scheme and is reviewed
prior to the start of each financial year to
ensure that it appropriately supports the
business strategy.
Performance measures and stretching
targets are set by the Committee.
Bonuses are normally paid in cash. In any
year in which no dividend is proposed
discretion may be exercised to pay part,
or all, of the bonus in ordinary shares,
deferred for two years.
Actual bonus amounts are determined
by assessing performance against the
agreed targets after the year end. The
results are then reviewed to ensure that
any bonus paid accurately reflects the
underlying performance of the business.
Clawback provisions can be applied for
a period of two years from the bonus
payment date in certain circumstances,
including a material misstatement,
serious misconduct, a material failure of
risk management or serious reputational
damage to any Group company.
Typically, annual awards are made
under the LTIP. Awards can be
granted in the form of nil-cost options,
forfeitable shares or conditional
share awards.
Performance is measured over a
performance period of not less than
three years. LTIP awards do not
normally vest until the third anniversary
of the date of the grant.
Vested awards are then subject to a
two year holding period. For nil-cost
options this will be a prohibition on
exercise until the end of the
holding period.
Awards may be granted with the
benefit of dividend equivalents, so
that vested shares are increased by the
number of shares equal to dividends
paid from the date of grant to the date
of exercise.
Malus provisions can be applied to
awards prior to the vesting date and
clawback provisions can be applied
for two years thereafter in certain
circumstances, including a material
misstatement, serious misconduct, a
material failure of risk management
or serious reputational damage to any
Group company.
Performance measures are selected to
focus executives on strategic priorities,
providing alignment with shareholder
interests and are reviewed annually.
Weightings and targets are reviewed and
set at the start of each financial year.
Financial metrics will comprise at least
50% of the bonus and are likely to
include one or more of:
• a profit based measure
• a cash based measure
• a capital return measure
Non-financial metrics, key to business
performance, will be used for any
balance. These may include measures
relating to build quality and customer
service.
Overall, quantifiable metrics will comprise
at least 70% of the bonus.
Below threshold performance delivers no
bonus and target performance achieves a
bonus of 50% of base salary.
The performance measures applied
to LTIP awards are reviewed annually
to ensure they remain relevant to
strategic priorities and aligned to
shareholder interests.
Weightings and targets are reviewed
and set prior to each award.
Performance measures will include
long term performance targets,
of which financial and / or share
price based metrics will comprise
at least two thirds of the award.
Quantifiable non-financial metrics,
key to business performance, will be
used for any balance.
Any material changes to the
performance measures from year
to year would be subject to prior
consultation with the Company’s
major shareholders.
Below threshold performance realises
0% of the total award, threshold
performance realises 30% and
maximum performance realises
100%. The Committee may adjust
downwards the number of shares
realised in the event that the formulaic
outcome does not, in its opinion,
reflect the underlying financial
performance of the Company.
96 | Our governance
Remuneration report Purpose and link to strategy
Operation
Opportunity
Performance metrics
Shareholding guideline
To encourage executives to build
up a meaningful shareholding over
time and align the interests of
management and shareholders.
Executive directors benefitting from the
exercise or release of LTIP awards are
expected to retain 100% of the net value
derived as shares, after settling all costs
and income tax due, until such time as the
guideline is met.
The guideline for the CEO
is 200% of base salary and
for the GFD is 100% of
base salary.
Not applicable.
Notes to the policy table
The Committee may make minor amendments to the policy set out above (for regulatory, exchange control, tax or administrative purposes or to take account
of a change in legislation) without obtaining shareholder approval for that amendment.
The executive directors may request and the Company may grant salary and bonus sacrifice arrangements.
The LTIP rules permit the substitution or variance of performance conditions to produce a fairer measure of performance as a result of an unforeseen event
or transaction and include discretions for upwards adjustment to the number of shares to be realised in the event of a takeover, scheme of arrangement or
voluntary winding up. Non-significant changes to the performance metrics may be made by use of discretion under the LTIP rules. Awards are normally satisfied
in shares, although there is flexibility to settle in cash.
The Committee reserves the right to make remuneration payments and payments for loss of office (including exercising any discretions available to it in
connection with such payments) that are not in line with the policy table set out above where the terms of the payment were agreed:
(i) before the policy came into effect; or
(ii) at a time when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for
the individual becoming a director of the Company.
For these purposes “payments” includes the Committee satisfying awards of variable remuneration and an award over shares is “agreed” at the time the award
is granted.
Performance measures for the annual bonus scheme and the LTIP are selected to focus the executive directors on strategic financial and operational priorities,
both short term and those related to long term sustainable performance, providing alignment with shareholder interests. Targets for each performance measure
are then set by the Committee in light of strategic objectives over the short term for the annual bonus scheme and over at least a three year performance
period for the LTIP. In setting targets the Committee takes into account a number of reference points including internal and analysts’ forecasts.
Bovis Homes Group PLC | 97
Our governance Audit committee report
I am pleased to introduce the Audit Committee report.
The Committee continues to play a fundamental role
in protecting shareholders’ interests and during the
year reviewed the Group’s internal control systems, risk
management and financial reporting. It also maintained
oversight of external and Internal Audit.
Ralph Findlay
Committee Chairman
Overview
Committee membership
and meetings
The Committee comprised four
independent non-executive directors until
28 November 2017, when the number
increased to five. Between them they
have the recent and relevant experience
During the year, the Committee reviewed
required by the UK Corporate Governance
the integrity of the Group’s financial
Code and as a whole they have
statements, with focus on significant
competence relevant to the sector in which
areas of judgement, and kept operating,
the Company operates. Biographical details
financial and accounting practices
and information on skillsets are provided
under review.
on pages 58 and 59.
The system for internal control, financial
Committee membership is determined
reporting and risk management was
by the Board following recommendation
monitored and its effectiveness reviewed
from the Nomination Committee and
The Committee met four times in 2017
and detailed papers and information
were received sufficiently in advance of
meetings to allow proper consideration of
matters for discussion. The Committee also
met with the external auditors, without
executive management present, at the
end of three meetings and with the Head
of Internal Audit & Risk at the end of
two meetings. These discussions continued
to focus on opportunities for improvement
in the control environment. Ralph Findlay
met privately with the audit engagement
partner of the external auditors during
the year. The Group Company Secretary
acts as secretary to the Committee.
An overview of the main activities during
in the context of the Group’s operational
is reviewed as part of the Committee’s
2017 is provided below.
performance and its operational and
performance evaluation. Mike Stansfield
strategic priorities. Reporting from
became a member of the Committee
management, Internal Audit and the
on his appointment as a non-executive
external auditor was openly debated,
director on 28 November 2017.
testing conclusions and audit outcomes
The Company Chairman and Group
and judgements. Focus on the
Finance Director were present at all
effectiveness of the Group’s Internal Audit
meetings in 2017 and the new Chief
function continued, with a new Head of
Executive attended three meetings, all
Internal Audit & Risk commencing in early
by invitation. The external auditors,
2017 and co-ordinating the co-sourced
PricewaterhouseCoopers LLP, attended
arrangement put in place in 2016.
three meetings and Grant Thornton UK
The overall review of risk management
LLP attended one meeting as co-sourced
was progressed through the Risk
Internal Audit provider. The newly
Governance Committee.
appointed Head of Internal Audit & Risk
and the Executive Director attended two
meetings each and the Group Financial
Controller attended three meetings.
“The Committee is satisfied
with the progress made
in improving the control
environment in 2017”
Name
Date of appointment
Role
Ralph Findlay (appointed Chairman 15/05/15)
07/04/2015
Chairman
Alastair Lyons
Chris Browne
Nigel Keen
Mike Stansfield
01/10/2008
Member
01/09/2014
Member
15/11/2016
Member
28/11/2017
Member
Attendance
at meetings
4/4
4/4
4/4
3/4
1/1
98 | Our governance
Our governance
• Reviewed the Company’s whistleblowing
policy and arrangements.
• Reviewed the Committee’s terms
of reference.
Reports were received from Internal
Audit covering various aspects of the
Group’s regional operations, controls and
processes. Progress with regional reviews
was monitored throughout the year and
reports considered, with many findings
being common across the regions and
related to steps being taken to improve the
control environment, including a quarterly
self-assessment process. Early in 2017,
a review was completed on customer
payments by Grant Thornton for review by
the Committee, with the vast majority being
found to relate to compensation arising from
build delivery being later than anticipated
and completion dates being moved.
In August 2017, the Committee discussed
the outputs to date from the 2017 Internal
Audit plan with emphasis on a remediation
strategy to overcome inconsistencies across
the Group in relation to key processes.
In December 2017, the Committee
reviewed outputs from the completed
Internal Audit plan, with discussion
focussing on the improvement of build
Responsibilities and terms
of reference
The key responsibilities of the
Committee are:
• Monitoring the integrity of the financial
statements, the accompanying reports to
shareholders and corporate governance
statements, including reviewing the
findings of the external auditor.
• Reviewing and monitoring the
• Reviewed the 2016 annual report and
accounts, so as to recommend to the
Board that, taken as a whole, it was fair,
balanced and understandable.
• Assessed the results and effectiveness of
the 2016 final audit.
• Reviewed and discussed with the
external auditor the key accounting
considerations and judgements reflected
in the Group’s results for the six months
effectiveness of systems for internal
ended 30 June 2017.
control, financial reporting and risk
management.
• Overseeing and reviewing the
effectiveness of Internal Audit.
• Evaluated and agreed the external
auditor’s audit strategy memorandum in
advance of the 2017 year-end audit.
• Received reports from Internal Audit
• Making recommendations to the Board
(further detail below).
Main activities during the year
review and further steps to be taken.
in relation to the appointment and
removal of the external auditor and
approving their remuneration and terms
of engagement.
• Reviewing and monitoring the external
audit process and the independence and
objectivity of the auditor, as well as the
nature and scope of the external audit
and its effectiveness.
• Developing the policy on the
engagement of the external auditor to
supply non-audit services, taking into
account relevant ethical guidance.
The Committee’s terms of reference are
available on the Company’s website
(www.bovishomesgroup.co.uk/investors/
corporate-governance).
The Committee followed a programme
structured around the annual reporting
cycle and received reports from co-sourced
Internal Audit, the external auditors and
management. The key activities
undertaken were:
• Discussed with the external auditors the
key accounting considerations
and judgements reflected in the
Group’s results for the year ended
31 December 2016.
• Assessed the co-sourced Internal Audit
providers’ full audit plan for 2017.
• Reviewed and assessed the Group’s
risk appetite.
• Assessed progress with the overall review
of risk management and the work being
completed by the Risk Governance
Committee, including review of minutes.
• Reviewed the effectiveness of the
system of internal control and risk
management systems and monitored
and cost forecasting processes and
progress in the delivery of improvement
controls. In addition, time was spent
in the control environment.
• Completed an assessment of anti-bribery,
fraud risk and anti-fraud measures.
• Monitored progress with the IT security
• Reviewed management’s going concern
assessment at each reporting period
end, considering detailed financial
forecasts, future cash flow projections
and the resources available to the Group,
including the current banking facility and
forecast covenant compliance.
reviewing the wider change programme
taking place within the Group to agree a
common approach and ensure improved
coordination.
Whistleblowing was also discussed in
light of a substantial increase in the
number of reported cases and subsequent
investigations. The Group operates a
confidential reporting service run by an
external provider and investigations are
completed by independent resource within
the Group. Eleven cases were raised during
2017, with the majority in the second
half following a concerted awareness
• Reviewed management’s viability
campaign that will continue throughout
assessment for the year end reporting
2018. The Committee remains committed
period covering strategic planning,
principal risks, detailed financial
forecasts, resources available to the
to ensuring that the whistleblowing facility
is well publicised throughout the Group
and will continue to monitor reporting and
Group, scenario testing, qualifications
investigations to ensure that appropriate
and assumptions and the period chosen.
action is taken and cases are closed out on
timely basis.
Bovis Homes Group PLC | 99
Audit committee report
At its meeting in February 2018, the
Following discussion, the Committee
External auditors
PricewaterhouseCoopers LLP (PwC) were
appointed as external auditor at the
2015 AGM, following the completion
of a competitive audit tender process
supervised by the Committee. In doing
so, the Committee complied with the
provisions of the Competition & Markets
Authority Order, including the appointment
of the auditor to audit and non-audit
services. Our 2018 AGM Notice contains a
resolution for the re-appointment of PwC
as auditors to the Company. In making
this recommendation, the Committee took
into account, amongst other matters, the
independence and objectivity of PwC,
the effectiveness of the external audit
process and cost. There are no contractual
restrictions on the choice of external
auditor. The AGM Notice also contains a
resolution to give the directors authority
to determine the auditor’s remuneration,
which provides a practical flexibility to
the Committee.
During the year, the Committee reviewed
the independence and objectivity of the
external auditor, which was confirmed
in an independence letter containing
information on procedures providing
safeguards established by the external
auditor. Regulation, professional
requirements and ethical standards
were taken into account, together with
consideration of all relationships between
the Company and PwC and their staff.
Relations with the external auditors are
managed through a series of meetings
and regular discussions and the
Committee ensures a high quality audit
by challenging the key areas of the
external auditor’s work.
Committee discussed with the external
was satisfied that the judgements
auditor the key accounting considerations
exercised were appropriate and that the
and judgements reflected in the Group’s
provision was appropriately stated at the
results for the year ended 31 December
year end. Details of the movements in
2017 and reviewed the 2017 Annual Report
the provision are provided in note 3.1 to
and Accounts, to be able to recommend
the accounts on pages 123 to 124.
• Margin recognition - the gross margin
from revenue generated on each
individual site within the year is based on
the latest forecast for the gross margin
expected to be generated over the life of
that site. The remaining life gross margin
is calculated using forecasts for selling
prices and all land, build, infrastructure
and overhead costs associated with that
site. The assessment of house prices and
cost to complete is based on the specific
details of each site and incorporates
certain assumptions and judgements
by management. The level of profit
recognised in the income statement is
monitored throughout the year via the
Group’s usual budgeting, forecasting and
management accounts reporting. The
methodology adopted and the Group’s
performance to date against expectations
had been audited by the external
auditors.
• Customer care provision - following
legal completion, the Group provides
a two year warranty that covers any
defects which arise during that period.
The level of provision per completion is
based on actual costs incurred over the
preceding twelve months. Judgement is
applied in determining whether this level
of provision is sufficient, or whether it
should be adjusted to reflect the level of
outstanding customer rectification works
at the balance sheet date.
to the Board that, taken as a whole, it
was fair, balanced and understandable
and provided the information necessary
for shareholders to assess the Company’s
performance, business model and strategy.
The approach taken was to analyse key
areas of progress and challenge during
the year, followed by reviewing the 2017
annual report and accounts to ensure that
all key areas had been reported upon in a
balanced and fair way.
Significant areas
The key accounting judgements considered
by the Committee in relation to the 2017
accounts and discussed with the external
auditors, were:
• Inventory provisioning - the level of
inventory provisioning impacts the
carrying value of the most significant
balance on the balance sheet. The
Company carries a provision to write
down the value of the land held within
inventories to the lower of cost and
net realisable value, less costs to sell,
where this is less than the historical
cost and reviews this provision annually.
The assessment of the level of provision
required necessitates the exercise of
judgement by management.
The Committee receives a regular
report on this provision, updated by
management, at relevant Committee
meetings. At this year end the report
proposed an adjustment of £4.2m, which
included a provision of £3.3m for
out of operating area sites and had
been audited by the external auditors.
The written down sites, and adjustments
proposed were discussed and justified by
management and the land write down
provision remaining at the period end
(£5.5 million) was reviewed, together
with the profit attributable to the reversal
of the provision on the sale of written
down units during the year, which was
not considered to be material.
100 | Our governance
At its meeting in February 2018, the
Committee reviewed the effectiveness of
the external audit process as part of its
consideration of the 2017 final audit. This
involved assessing delivery and content
against the audit plan for the 2017 year
end audit, including determination of audit
risks and significant areas of judgement,
consideration of the performance and
communication of the audit team, and
the quality of reporting, observations,
recommendations and insight. It also
included reviewing comprehensive papers
from the external auditors, discussing and
challenging their conclusions and audit
judgements and assessing responses from
the external auditor. Lastly, feedback was
taken on the effectiveness and conduct of
the audit from those involved, including
feedback from the regional businesses on
visits to the regions, which was positive.
The Committee keeps under review its
policy which requires the Committee to
approve all audit related and non-audit
services proposed to be undertaken by
the external auditors, with the exception
of compliance work undertaken in the
ordinary course of business, which is
treated as pre-approved.
When a request for approval is made, the
Committee has due regard to the nature
of the audit related or non-audit service,
whether the external auditor is a suitable
supplier, and whether there is likely to be
any threat to independence and objectivity
in the conduct of the audit.
The related fee level, both separately
and relative to the audit fee is also
Internal Audit
Towards the end of 2016, a tender
for co-sourced Internal Audit services
was completed, which resulted in the
appointment of Grant Thornton to
provide the expertise and experience
necessary to support the delivery of
effective Internal Audit services and
to assist in securing improvement
in the control environment. In early
2017, a Head of Internal Audit & Risk
was appointed to lead the function
and coordinate the co-sourced
provision through Grant Thornton.
Internal Audit & Risk was further
strengthened during 2017 with an
additional team member joining to
ensure an improved balance between
the internal resource and co-sourced
expertise. The Committee has
reviewed the progress being made
to enhance the effectiveness of the
work of Internal Audit and the profile
of the Risk Governance Committee in
identifying and mitigating threats to
the business. Overall, the Committee
is satisfied with the progress made
and the plan for future improvements
in the control environment and risk
management during 2018.
Performance evaluation
An evaluation of the performance of the
Committee was completed as part of
the external independent performance
evaluation of the Board, completed at
the end of 2017. The Committee is
considered to be gaining in effectiveness
Our governance
The attendance of functional team leaders
and risk owners at Committee meetings,
with the Head of Internal Audit & Risk,
is also to be considered to allow more
direct interaction.
The Committee also undertook an
assessment of the effectiveness of the
external auditor and the Group’s Internal
Audit function. Building on effective
working relationships and having gained
a strong understanding of the Group’s
business, the Committee considers PwC
to have carried out a high quality and
thorough audit in the third year since
appointment. The Committee was satisfied
with the scope of the external audit and,
having reviewed all services provided to
the Group by PwC, that they demonstrate
independence. The Committee believes the
external audit to be effective. Regarding
Internal Audit, the Head of Internal Audit
& Risk, appointed to lead the function
and coordinate the co-sourced provision,
is considered to have made significant
progress, establishing credibility through
the business, identifying risk and control
weaknesses, producing clear and well-
articulated reports for Committee review
and supporting an improvement in
processes and controls. The Committee
has also kept the effectiveness of the
co-sourced approach under review during
2017 and intends to continue with it
in 2018. Whilst further improvement in
the control environment is needed, the
Committee is satisfied with the progress
made and the plan for 2018.
considered. For an analysis of fees paid
and to be making good progress in
to PwC for audit services see note 2.1 on
driving improvements around audit and
page 122. There were no non-assurance
risk. The Chairman has brought focus
Ralph Findlay
Chairman of the Audit Committee
services provided by PwC during the year,
and rigour to the Committee and displays
1 March 2018
beyond a de-minimis technical accounting
a good balance between the technical
subscription service.
skills required and ability to challenge.
The agenda is well managed, items are
allowed sufficient time for discussion, and
Committee members also present the right
level of challenge. Areas for improvement
have been identified, principally related
to moving the level of assurance that the
Committee receives and can give to a
higher level.
Bovis Homes Group PLC | 101
Nomination Committee report
Following focus on the appointment of a new Chief Executive,
the Committee has kept the composition of the Board under
review, maintained its concentration on succession planning
and made one nomination for appointment to the Board.
Committee membership and meetings
All members of the Committee are independent non-executive directors, with the exception
of the Chairman of the Company. Ian Tyler chaired the Committee during the year and
the other members were Alastair Lyons, Chris Browne, Ralph Findlay, Nigel Keen and Mike
Stansfield (from 28 November 2017).
Ian Tyler
Committee Chairman
Overview
During 2017, the Committee continued to
place emphasis on the knowledge, skills
and experience available to the Board,
Name
Ian Tyler
Alastair Lyons
Chris Browne
Ralph Findlay
taking account of future challenges, the
Nigel Keen
nature of the business and its recent past.
Mike Stansfield
The recruitment of a new Chief Executive
Date of
appointment
Role
Attendance
at meetings
29/11/2013
Chairman
01/10/2008
01/09/2014
07/04/2015
15/11/2016
28/11/2017
Member
Member
Member
Member
Member
6/6
6/6
6/6
6/6
6/6
1/1
was a turning point and Board composition
The Committee met six times in 2017,
has been a key consideration. The search
for a non-executive director with in-depth
housebuilding experience culminated
in Mike Stansfield joining the Board in
November 2017. Succession planning
was kept under review for the non-
executives, with diversity naturally part of
this oversight, and a succession planning
exercise for executive management was
with the key focus in the first part of the
year being on the recruitment of a new
Chief Executive and Board composition.
Following the Committee’s contribution,
Greg Fitzgerald was appointed Chief
Executive by the Board with effect from
18 April 2017. Planning then began for
the retirement of A D Lyons at the 2018
AGM and for the recruitment of a non-
initiated for Board review. The Committee
executive director with direct experience
The Chief Executive attended three
meetings and the Group Finance Director
attended four meetings, both by invitation
The Group Company Secretary acts as
secretary to the Committee.
Responsibilities and terms
of reference
The key responsibilities of the
Committee are:
will continue to monitor the balance and
composition of the Board as the future
of housebuilding. The recruitment was
• Reviewing the structure, size and
progressed and monitored and culminated
composition of the Board (including
direction of the Group unfolds. Information
in a recommendation to the Board
skills, knowledge, experience and
on the Board’s skillset is set out on pages
58 to 59, together with biographies.
that Mike Stansfield, who has a strong
diversity) and making recommendations
housebuilding industry background, be
to the Board.
appointed. Planning for non-executive
director succession continued and it
was recommended that R G Findlay be
appointed the Senior Independent
Director from the conclusion of the
2018 AGM. The Committee also scoped
a detailed succession planning exercise
for executive management and the results
were presented to and discussed by the
Board in December 2017. In addition, the
Committee reviewed the diversity policy
and approved a new service contract for
non-executive director Chris Browne.
For all meetings, papers and supporting
documentation were circulated in advance,
allowing proper consideration of matters
for discussion.
• Considering succession planning
for directors and senior executives,
taking account of the challenges and
opportunities facing the Company and
the skills and expertise needed in
the future.
• Monitoring the leadership needs of the
Company and leading the process for
Board appointments, ensuring they are
conducted on merit, against objective
criteria, including diversity, using the
services of an appropriate external
search consultant.
102 | Our governance
Our governance
• Making recommendations to the Board,
including on the re-appointment of non-
executive directors, the re-election of
directors at the AGM, and membership
of the Audit and Remuneration
Committees.
The Committee also reviews the results
of the Board performance evaluation
relating to the composition of the Board.
External legal or other independent
professional advice can be obtained at
the Company’s expense, although this
facility was not utilised during the year.
The Committee’s terms of reference
are available on the Company’s website
(www.bovishomesgroup.co.uk/investors/
A summary of the Committee’s activities during 2017 follows:
• Providing support to the search for the new Chief Executive.
• Keeping the structure, size and composition of the Board under review, concluding
that the Board balance and composition should be supplemented by an additional
non-executive director with strong housebuilding experience.
• Running the recruitment process for a new non-executive director, using objective
criteria and the external search services of The Zygos Partnership (who have no
other connection with the Company), including recommendation of appointment to
the Board.
• Considering succession planning for the non-executive directors, with a view to
future requirements.
• Scoping a succession planning exercise for executive management for Board review.
corporate-governance).
• Reviewing the Board’s diversity policy.
Main activities during the year
The main activities during the first part of
2017 were focused on the recruitment
of a new Chief Executive and Board
composition. Having initiated a search for
a candidate with in-depth housebuilding
experience, the Committee recommended
the appointment of Mike Stansfield as a
• Recommending the directors to stand for re-election at the 2017 AGM in
accordance with the UK Corporate Governance Code.
• Approving the Nomination Committee report for the 2016 Annual Report.
• Reviewing the Committee’s terms of reference.
• Setting a Committee timetable for 2018.
non-executive director. Mike’s appointment
The principle of boardroom diversity is
took place with effect from 28 November
strongly supported and the Committee
2017. A formal, comprehensive and
reviewed the diversity policy, first published
tailored induction is being provided for
in September 2011. The policy sets out
Mike, including visits to the regional
that appointments to the Board will always
offices, site visits, meetings with senior
be based on merit, so that the Board has
management, and briefings on specific
the right individuals in place with a blend
topics. Succession planning then received
of abilities, views and backgrounds.
focus for both the non-executives and
It also explains that diversity is seen as an
executive management.
important consideration as part of the
Performance evaluation
An evaluation of the performance of the
Committee was completed as part of
the external independent performance
evaluation of the Board, completed at
the end of 2017. The Committee was
found to be effective, within its current
scope, but should expand its scope with
deeper consideration of board shape
and composition relative to strategy and
succession planning, including diversity.
Non-executive directors’ service contracts
are renewed on an annual basis following
the conclusion of a second three year
term, subject to satisfactory performance
and there being no need to re-balance
the Board, with the third year of the
third term extending until the subsequent
AGM. Having served for three years, a
recommendation was made to the Board
that the service contract for Chris Browne
be renewed for a second three year term.
This decision followed rigorous review,
including the contribution, performance
and commitment of Chris and the
composition of the Board as a whole.
objective criteria used to assess candidates
to achieve a balanced board. The decision
was taken not to set measurable objectives
and the Committee continues to consider
boardroom diversity in all its succession
Ian Tyler
planning discussions.
Chairman of the Nomination Committee
1 March 2018
Bovis Homes Group PLC | 103
Directors’ report
The directors have pleasure
in submitting their annual
report for the year ended
31 December 2017.
Other disclosures made in the
Annual Report
The Company is required to disclose
certain information in its directors’ report
which the directors have chosen to disclose
Research and development
We continue to undertake research and
Annual General Meeting
development to improve the processes,
Notice of the 2018 Annual General
materials and products used in the
Meeting to be held on Wednesday,
construction of our developments and to
23 May 2018 is set out on pages 150
enhance the energy efficiency of our range
to 153. Members wishing to vote
of homes.
Disclosure of information
under Listing Rule 9.8.4R
should return forms of proxy to the
Company’s Registrar not less than 48
hours, (excluding non-working days),
before the time for holding
the meeting.
The directors believe that all the
resolutions to be considered at the
Annual General Meeting are in the
best interests of the Company and its
shareholders as a whole. The directors
unanimously recommend that all
shareholders vote in favour of the
resolutions, as the directors intend
to do in respect of their own shares in
the Company.
elsewhere in the Annual Report and is
There is no further information to be
incorporated by reference. Details of
disclosed in accordance with Listing Rule
where this information can be found are
9.8.4R.
set out below:
Subject
Likely future developments in the business
Important events since the year end
Going concern statement
Directors’ interests
Pages
12 to 15
146
28
87
Employee involvement / employment of disabled persons
38 to 41
Greenhouse gas emissions
Corporate governance report
Directors’ remuneration
Subsidiaries and associated undertakings
A final dividend of
32.5p
(2016: 30.0p)
is proposed
48
Directors
60 to 75
78 to 97
140 to 141
Details of the directors are shown on
pages 58 to 59.
Mike Stansfield was appointed as an
independent non-executive director on
28 November 2017.
Dividends
An interim dividend of 15.0p (2016: 15.0p)
per share was paid on 17 November 2017.
The Board proposes to pay, subject to
shareholder approval at the 2018 Annual
General Meeting, a final dividend of 32.5p
(2016: final dividend of 30.0p) per share
in respect of the 2017 financial year on 25
May 2018 to shareholders on the register
at the close of business on 3 April 2018.
On this basis, the total dividend for 2017
will be 47.5p (2015: 45.0p), representing
an increase of 5%.
The dividend reinvestment plan
gives shareholders the opportunity to
reinvest dividends.
In accordance with the UK Corporate
Governance Code, all the directors, with
the exception of Alastair Lyons, will retire
at the 2018 Annual General Meeting
and, being eligible, offer themselves for
re-appointment. Alastair Lyons will retire
from the Board at the Company’s 2018
Annual General Meeting on 23 May 2018,
having completed nine years as a non-
executive director since the date of his
first election.
Details of directors’ pay, pension rights,
service contracts and directors’ interests in
the ordinary shares of the Company are
included in the Directors’ Remuneration
Report on pages 78 to 97.
Directors’ names and
functions are listed on
pages 58 to 59
Notice of the 2018
Annual General Meeting
pages 150 to 155
104 | Our governance
Directors’ indemnities
Articles of Association
During the financial year and as at the date
Unless expressly specified to the contrary
of this report, indemnities were in force
in the Articles of Association, they may
under which the Company has agreed
only be amended by a special resolution
to indemnify the directors, to the extent
of the Company’s shareholders at a
permitted by law and the Company’s
general meeting.
Articles of Association, in respect of all
losses arising out of, or in connection
with, the execution of their powers, duties
and responsibilities, as directors of the
Company or any of its subsidiaries.
David Ritchie was a director of Bovis
Homes Pension Scheme Trustee Limited
(the “Pension Trustee”) until 9 January
2017. The Company’s subsidiary, Bovis
Homes Limited, has granted a qualifying
pension scheme indemnity to the directors
of the Pension Trustee to the extent
permitted by law in respect of all losses
arising out of, or in connection with, the
execution of their powers, duties and
responsibilities as directors of the
Pension Trustee.
Powers of the directors
Subject to the Company’s Articles of
Association, UK legislation and any
directions given by special resolution,
the business of the Company is
managed by the Board, which
may exercise all the powers of the
Company. The directors have been
authorised to allot and issue ordinary
shares and to make market purchases
of the Company’s ordinary shares
and these powers may be exercised
under authority of resolutions of
the Company passed at its Annual
General Meeting. The rules in relation
to the appointment and replacement
of directors are set out in the
Company’s Articles of Association.
Our governance
Shareholders are entitled to attend, speak
and vote at general meetings of the
Company, to appoint one or more proxies
and, if they are corporations, to appoint
corporate representatives.
On a show of hands at a general meeting
of the Company every shareholder present
in person or by proxy and entitled to
Share capital
The Company has a premium listing on
vote has one vote and on a poll every
the London Stock Exchange. As at
shareholder present in person or by proxy
1 March 2018, its share capital comprised
and entitled to vote has one vote for
134,670,804 fully paid Ordinary Shares of
every ordinary share held. Further details
50 pence each. At the Company’s 2017
regarding voting, including the deadlines
AGM, the directors were authorised to:
for voting, at the Annual General Meeting
• allot shares in the Company or grant
rights to subscribe for, or convert, any
security into shares up to an aggregate
nominal amount of £22,397,969;
• allot shares up to an aggregate nominal
can be found in the notes to the Notice of
the Annual General Meeting at the back
of this annual report and accounts.
No shareholder is, unless the Board decides
otherwise, entitled to attend or vote either
personally or by proxy at a general meeting
amount of £44,795,939 for the purpose
or to exercise any other shareholder
of a rights issue; and
• make market purchases up to
13,452,234 shares in the Company
(representing approximately 10% of
the Company’s issued share capital at
the time).
Shareholders will be asked to renew similar
authorities at the 2018 AGM.
During the year the Company allotted
142,679 shares in connection with the
exercise of options under the Company’s
employee share plans. The Employee
Benefit Trust purchased 275,000 shares
during the year.
rights if he or any person with an interest
in shares has been sent a notice under
section 793 of the Companies Act 2006
and has failed to supply the Company
with the requisite information within the
prescribed period.
Shareholders may receive a dividend and
on a liquidation may share in the assets of
the Company. None of the ordinary shares
of the Company, including those held by
the Company’s share schemes, carry any
special rights with regard to control of
the Company. Employees participating in
the Bovis Homes Group Share Incentive
Plan may direct the trustee to exercise
voting rights on their behalf at any general
The Company has not held any shares in
meeting but are not required to do so.
treasury during the period under review.
The instrument of transfer of a certificated
All issued shares are fully paid and free
share may be in any usual form or in any
from any restrictions on their transfer,
except where required by law, such
as insider trading rules. The rights and
obligations attaching to the Company’s
ordinary shares are set out in the
other form which the Board may approve.
The Board may refuse to register any
instrument of transfer of a certificated
share which is not fully paid, provided that
the refusal does not prevent dealings in
Company’s Articles of Association, copies
shares in the Company from taking place
of which can be obtained from Companies
on an open and proper basis. Certain
House in the UK or by writing to the
Group Company Secretary.
employees and officers of the Company
must conform to the Company’s share
dealing rules; these restrict the ability to
deal in the Company’s shares at certain
times and require permission to deal.
Bovis Homes Group PLC | 105
Directors’ report
The Board may also refuse to register a
Transfers of uncertificated shares must
transfer of a certificated share unless the
be carried out using the relevant system
instrument of transfer: (i) is lodged, duly
and the Board can refuse to register a
stamped (if stampable), at the registered
transfer of an uncertificated share in
office of the Company or any other place
accordance with the regulations governing
decided by the Board accompanied by the
the operation of the relevant system and
certificate for the share to which it relates
with UK legislation. There are no other
and such other evidence as the Board may
limitations on the holding of ordinary
reasonably require to show the right of the
shares in the Company and the Company
transferor to make the transfer; (ii) is in
is not aware of any agreements between
respect of only one class of shares; and (iii)
holders of securities that may result in
is in favour of not more than
restrictions on the transfer of securities or
four transferees.
on voting rights.
An interim dividend of
15.0p
(2016: 15.0p)
per share was paid on
17 November 2017
Substantial shareholdings
As at 31 December 2017, the following interests of 3% or more in the Company’s issued share capital had been notified to the Company:
Ordinary shares of 50p each
BlackRock, Inc.
Standard Life Aberdeen plc group of companies
Prudential plc group of companies
Shroders plc
Royal London Asset Management Limited
Legal & General Group Plc
Norges Bank
% direct
holding
% indirect
holding
% financial
instruments
Total number of
shares held
-
-
-
-
4.14
<3
<3
7.45
7.19
5.11
4.96
-
-
-
0.51
10,726,928
-
9,680,972
0.48
7,529,026
-
-
-
-
6,680,423
5,567,004
-
-
% of voting
rights of
the issued
share capital
7.96
7.19
5.59
4.96
4.14
<3
<3
Between 1 January and 1 March 2018, the following interests of 3% or more in the Company’s issued share capital were notified to
the Company:
1 March 2018,
Ordinary shares of 50p each
Woodford Investment Management Ltd
% direct
holding
5.53
% indirect
holding
% financial
instruments
Total number of
shares held
-
-
7,459,000
Prudential plc group of companies
-
4.73
0.20
6,644,963
Norges Bank
3.05
-
0.17
4,335,572
% of voting
rights of
the issued
share capital
5.53
4.93
3.22
Directors Remuneration
Report pages 78 to 97
Notice of the 2018
Annual General Meeting
pages 150 to 155
Share capital comprised of
134,670,804
fully paid Ordinary Shares
50p each
1 March 2018
106 | Our governance
Takeover directive
On a change of control, provisions
in the Group’s syndicated banking
facility agreements (described in note
4.3 to the accounts) would allow
lenders to withdraw the facility.
All of the Group’s share schemes
contain provisions relating to a
change of control. Under these
provisions, a change of control would
be a vesting event, allowing exercise
of outstanding options and awards,
subject to satisfaction of performance
conditions, as required.
There are a number of commercial
contracts that could alter in the
event of a change of control. None is
considered to be material in terms of
their potential impact on the Group
in this event.
Financial risk management
Details of financial risk management and
exposure to credit / liquidity risks are
included in note 4.6 to the accounts.
Political donations
No political donations were made during
the year ended 31 December 2017
(2016: nil). The Group has a policy of not
making donations to political parties or
incurring political expenditure.
Auditors
Each person who is a director at the date
of approval of this report confirms that:
no relevant audit information of
which the Company’s auditors are
unaware; and
• each director has taken all the steps
that he/she ought to have taken as a
director to make himself/herself aware
of any relevant audit information and to
establish that the Company’s auditors
are aware of that information.
This confirmation is given and should
be interpreted in accordance with
the provisions of Section 418 of the
Companies Act 2006.
Our governance
Following an audit tender process
financial position of the Company and
conducted at the end of 2014,
the Group and enable them to ensure
PricewaterhouseCoopers LLP were
that the financial statements and the
appointed as auditor at the 2015 AGM.
Directors’ Remuneration Report comply
In accordance with the provisions of
with the Companies Act 2006 and, as
the Companies Act 2006, resolutions
regards the Group financial statements,
concerning the re-appointment of
Article 4 of the IAS Regulation. They are
PricewaterhouseCoopers LLP and their
also responsible for safeguarding the
remuneration will be placed before the
assets of the Company and the Group
2018 Annual General Meeting.
and hence for taking reasonable steps for
Statement of directors’
responsibilities
The directors are responsible for preparing
the Annual Report, the Directors’
Remuneration Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the directors
to prepare financial statements for
each financial year. Under that law the
directors have prepared the Group and
Parent company financial statements in
accordance with International Financial
Reporting Standards (IFRSs) as adopted
by the European Union. Under company
the prevention and detection of fraud and
other irregularities.
The directors are responsible for the
maintenance and integrity of the
Company’s website. Legislation in the
United Kingdom governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
The directors consider that the Annual
Report and Accounts, taken as a whole,
is fair, balanced and understandable
and provides the information necessary
for shareholders to assess a Company’s
performance, business model and strategy.
law the directors must not approve the
Each of the directors, whose names and
financial statements unless they are
functions are listed on pages 58 to 59 of
satisfied that they give a true and fair view
the Annual Report confirm that, to the
of the state of affairs of the Group and the
best of their knowledge:
Company and of the profit or loss of the
Group and the Company for that period.
In preparing these financial statements, the
directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and accounting
estimates that are reasonable
• the Group financial statements, which
have been prepared in accordance with
IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities,
financial position and profit of the
Group; and
• the Strategic Report contained in the
Annual report includes a fair review of
the development and performance of
the business and the position of the
Group, together with a description of
• state whether applicable IFRSs as
adopted by the European Union have
the principal risks and uncertainties that
been followed, subject to any material
it faces.
departures disclosed and explained in
the financial statements;
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions and disclose
with reasonable accuracy at any time the
By Order of the Board
M T D Palmer
Group Company Secretary
1 March 2018
Bovis Homes Group PLC
Registered number 306718
Bovis Homes Group PLC | 107
• so far as the director is aware, there is
and prudent;
Auditors’ report
Independent auditors’ report to the members of Bovis Homes Group PLC
Report on the financial statements
Our opinion
In our opinion, Bovis Homes Group PLC’s Group financial statements and Company financial statements (the “financial statements”):
• give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2017 and of the Group’s profit and
the Group’s and the Company’s cash flows for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the Company’s financial
statements, as applied in accordance with the provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual report and accounts (the “Annual Report”), which comprise: the
Group and Company balance sheets as at 31 December 2017; the Group income statement and the Group statement of comprehensive
income, the Group and Company statements of cash flows, and the Group and Company statements of changes in equity for the year then
ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to
the Group or the Company.
Other than those disclosed in note 2.1 to the financial statements, we have provided no non-audit services to the group or the company in
the period from 1 January 2017 to 31 December 2017.
Our audit approach
Context
Bovis Homes Group PLC is a British housebuilder listed on the London Stock Exchange. The Group is wholly UK based, operating in England
and Wales. The Group is dependent on macroeconomic factors as well as the conditions of the UK residential property market. The Group
may be particularly adversely affected by any factor that reduces sales prices or transaction volumes or presents constraints in the supply
chain in the UK residential property market. This was particularly relevant for our work in the areas of margin forecasting and the valuation
of inventory.
108 | Our governance
Our governance
Our audit approach - Overview
• Overall Group materiality: £5.7million (2016: £7.7million), based on 5% of profit before tax.
• Overall Company materiality: £4.7million (2016: £4.0million), based on 1% of total assets.
Materiality
Audit
scope
• The Group consists of one main trading entity and is structured into seven regions, being
Mercia, West Midlands, Western, South West, Northern Home Counties, South East and
Southern Counties. The Group financial statements are a consolidation of these seven
regional reporting units and the centralised Group functions.
• We undertook work across the seven regions which together account for 100% of the
Group revenue.
Key audit
matters
• Margin forecasting and recognition (Group).
• Carrying value of inventory (Group).
• Valuation of warranty and customer care provision (Group).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain. We gained an understanding of the legal and
regulatory framework applicable to the Group and the industry in which it operates, and considered the risk of acts by the Group which were
contrary to applicable laws and regulations, including fraud. We designed audit procedures to respond to the risk, recognising that the risk
of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations
that could give rise to a material misstatement in the Group financial statements, including but not limited to, the Companies Act 2006 and
the Health and Safety at Work etc Act 1974. Our tests included, but were not limited to, review of the financial statement disclosures to
underlying supporting documentation, review of correspondence with and reports to the regulators, review of correspondence with legal
advisors, enquiries of management and review of internal audit reports in so far as they related to the financial statements.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is
from the events and transactions reflected in the financial statements, the less likely we would become aware of it.
We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits, we also addressed the risk of
management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Bovis Homes Group PLC | 109
Auditors’ report
Key audit matter
How our audit addressed the key audit matter
Margin forecasting and recognition
Refer to page 100 of the Audit Committee Report and page 120
At a regional level we tested managements forecasting and
of the financial statements.
The Group’s margin forecasting and recognition model (“CV
model”) is based on a number of key assumptions including:
• Build costs (allocated to each plot on an actual costs basis)
• Land costs and central site costs, including infrastructure
monitoring controls, including observation of a selection of the
site review meetings attended by representatives from the Build,
Commercial and Finance teams.
We selected a sample of cost variations and verified that these
have had been appropriately approved.
costs (allocated to each plot based on the Group’s site wide
We attended CV counts at a sample of sites which provided
margin model)
evidence over existence of inventory as well as the basis for the
• Sales price (based on a fixed expected sales price for the type
valuation of costs incurred.
and size of property)
Periodic surveyor and financial appraisals are performed to determine
the costs to date and work in progress, based upon the stage of
completion of each unit. The CV model is updated accordingly.
We tested significant underlying assumptions within the CV
model and compared the costs recognised and stage complete
on key sites to the forecasts. We also understood any significant
differences between the forecast cost and actual cost incurred
and tested a sample of actual costs incurred and forecast costs to
If the overall site is loss making then management consider this
third party support.
as part of the land write down provisioning process.
There is uncertainty within the above assumptions from potential
We also tested that the system correctly recalculated the cost
apportionment following cost and stage completion amendments
changes in the market conditions or unforeseen circumstances.
made by management.
This could result in the forecast assumptions being inaccurate and
an incorrect margin being recognised.
We have tested a sample of forecast sales prices to the actual
sales price attained to support the validity of estimated sales
We consider this to be the most significant financial reporting risk
prices in the CV model.
for the Group principally due to the high level of management
judgement inherent in the accounting for the Group’s
developments.
Group
Carrying value of inventory
Refer to page 100 of the Audit Committee Report and page 120
of the financial statements.
Inventory is comprised of land held for development, work in
progress (WIP), raw materials and completed plots and part
exchange properties.
Land held for development and raw materials are held at cost.
WIP is made up of the cost of the land being built on, direct
materials, direct labour costs and those overheads that have
been incurred in bringing the inventories to their present location
and condition. Completed plots are held at build cost and part
exchange properties are held at the market value determined at
the time of exchange.
Inventories are stated at the lower of cost and net realisable
value (“NRV”), NRV being the estimated net selling price less
costs to sell and estimated total costs of completion based on
management’s forecast.
Due to the cyclical nature of the housing industry or issues
experienced during the build programme, there is a risk that the
NRV of the inventory is lower than cost and therefore inventory is
held at the incorrect value.
Group
Based on the procedures performed, we did not identify any sites
where we considered the underlying assumptions in the forecast
to be inappropriate.
We attended CV counts at a sample of sites which provided
evidence over existence of inventory as well as the basis for the
valuation of costs incurred.
We tested margins for all major sites to identify those with low
or eroding margins, for example due to specific issues or under
performance. We discussed the identified sites with management,
including considering the level of provisions held against these sites
and corroborated the explanations with other external evidence to
support the carrying value of inventory.
We tested the percentage completion of units across a sample of
sites and checked that forecasts have been appropriately updated
for costs incurred to date and expected costs to completion.
We also assessed the historical accuracy of management’s
forecasting.
We considered the level and ageing of completed but unreserved
units and part exchange properties and challenged the
recoverability of these assets.
We checked that appropriate site acquisition approvals had been
obtained for significant sites, which include consideration of site
profitability.
Based on the procedures performed we did not identify
any sites where we determined that additional impairments were
required in the year, above those already made
by management.
110 | Our governance
Our governance
Key audit matter
How our audit addressed the key audit matter
Valuation of warranty and customer care provision
Refer to page 100 of the Audit Committee Report and page 120
of the financial statements.
The Group provides private home buyers with a 2 year warranty
against issues arising from a failure to build to accepted
standards. As a result of this, the Group maintains a warranty
and customer care provision to cover the expected costs of
rectifying claims. This provision is based on historical experience
of such costs incurred across the Group supplemented by known
specific items, and may include compensation costs where
considered necessary.
Whilst some of the claims are known at the reporting date,
there may be others which have either not been notified to the
Group or have not yet become visible to customers. As a result
there is inherent uncertainty with respect to the completeness
and valuation of the estimated provision to remediate these
issues.
Group
We have tested a sample of specific items included in the
provision to correspondence received from customers, and
have corroborated the quantification of amounts provided by
management back to supporting documentation or explanations,
including evidence of settlement post year end, where available.
We have tested the calculation of the historical experience
rate by testing the underlying actual costs incurred and the
calculation apportioning this to properties sold during the 2 year
warranty period.
We have tested other directly related costs by corroborating these
back to supporting documentation.
We have tested the completeness of the provision by tracing
back a sample of known/identified claims to their inclusion in the
provision calculations.
Based on the procedures performed we noted no reasonable
likely alternative assumptions that would result in a material
change to the provision.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which
they operate.
The Group consists of one main trading entity and is structured into seven regions, being Mercia, West Midlands, Western, South West,
Northern Home Counties, South East and Southern Counties. The Group financial statements are a consolidation of these seven regional
reporting units and the centralised Group functions.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on
the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate
on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Overall Group materiality
£5.7 million (2016: £7.7million).
£4.7 million (2016: £4.0 million).
How we determined it
5% of profit before tax
1% of total assets.
Rationale for benchmark applied
We believe that profit before tax provides us
We believe that total assets provides us with
with the most appropriate benchmark given the
the most appropriate benchmark given the
business’ listed status and stakeholder focus
business’ listed status and stakeholder focus
on profits
on assets.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.3 million (Group
audit) (2016: £0.3 million) and £0.2 million (Company audit) (2016: £0.2 million) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
Bovis Homes Group PLC | 111
Auditors’ report
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or
We have nothing material to add or to draw attention to.
draw attention to in respect of the directors’ statement in the financial
However, because not all future events or conditions
statements about whether the directors considered it appropriate to
can be predicted, this statement is not a guarantee as
adopt the going concern basis of accounting in preparing the financial
to the Group’s and Company’s ability to continue as a
statements and the directors’ identification of any material uncertainties
going concern.
to the Group’s and the Company’s ability to continue as a going
concern over a period of at least twelve months from the date of
approval of the financial statements.
We are required to report if the directors’ statement relating to
We have nothing to report.
Going Concern in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based
on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report
that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs
(UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below
(required by ISAs (UK) unless otherwise stated).
112 | Our governance
Our governance
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 28 of the Annual Report that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 28 of the Annual Report as to how they have assessed the prospects of the Group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering
whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment
obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 107, that they consider the Annual Report taken as a whole to be fair, balanced
and understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the
course of performing our audit.
• The section of the Annual Report on pages 98 to 101 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
• The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement set out on page 107 the directors are responsible for the preparation of
the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors
are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Bovis Homes Group PLC | 113
Auditors’ report
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Consistency of other information and compliance with applicable requirements
Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Remuneration report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the Directors on 15 May 2015 to audit the financial
statements for the year ended 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement is 3
years, covering the years ended 31 December 2015 to 31 December 2017.
Christopher Burns
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
1 March 2018
114 | Our governance
Group income statement
For the year ended 31 December
Revenue
Cost of sales
Gross profit
Administrative expenses before exceptional items
Exceptional administrative expenses
Administrative expenses
Operating profit before exceptional items
Exceptional items
Operating profit
Financial income
Financial expenses
Net financing costs
Share of (loss)/profit of Joint Ventures
Profit before tax
Income tax expense
2017
£000
2016
£000
(restated)
see note 2
1,028,223
1,054,804
(843,572)
(845,775)
184,651
209,029
(56,619)
(49,059)
(6,812)
-
(63,431)
(49,059)
128,032
159,970
(6,812)
-
121,220
159,970
1,337
(8,536)
(7,199)
(20)
3,035
(8,622)
(5,587)
331
Note
2.0
2.1
2.0
2.1
2.1
4.4
4.4
4.4
5.5
114,001
154,714
5.1
(22,706)
(33,866)
Profit for the year attributable to ordinary shareholders
91,295
120,848
Earnings per share (pence)
Basic
Diluted
Group statement of comprehensive income
For the year ended 31 December
Profit for the year
Other comprehensive income /(expense)
Items that will not be reclassified to the income statement
Remeasurements on defined benefit pension scheme
Deferred tax on remeasurements on defined benefit pension scheme
Items reclassified to the income statement
Available for sale reserve reclassified on disposal
Deferred tax on available for sale reserve movement
2.3
2.3
68.0p
67.8p
90.1p
90.0p
Note
2017
£000
2016
£000
91,295
120,848
5.7
5.1
5.1
9,286
(1,630)
1,696
(288)
(14,107)
2,624
-
-
Total comprehensive income for the year attributable to ordinary shareholders
100,359
109,365
Bovis Homes Group PLC | 115
Balance sheets
As at 31 December
Assets
Property, plant and equipment
Investments
Restricted cash
Deferred tax assets
Trade and other receivables
Available for sale financial assets
Retirement benefit asset
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity
Issued capital
Share premium
Retained earnings
Note
5.4
5.5
5.2
4.2
5.7
3.1
3.2
4.1
4.5
4.5
Group
2017
£000
Group
2016
£000
Company
2017
£000
Company
2016
£000
2,603
8,717
1,414
-
832
-
2,111
15,677
11,870
8,786
1,444
1,955
5,758
27,804
-
-
9,849
-
7,606
-
-
-
-
-
-
-
-
-
-
57,617
9,849
7,606
1,321,952
1,449,165
-
-
76,686
170,062
84,992
38,552
1,568,700
1,572,709
1,584,377
1,630,326
463,454
415,620
344
463,798
473,647
344
415,964
423,570
67,330
215,991
773,255
67,261
67,330
67,261
215,057
215,991
215,057
733,609
187,806
138,693
Total equity attributable to equity holders of the parent
1,056,576
1,015,927
471,127
421,011
Liabilities
Bank and other loans
Deferred tax liability
Trade and other payables
Net retirement benefit obligations
Provisions
Total non-current liabilities
Trade and other payables
Provisions
Current tax liabilities
Total current liabilities
Total liabilities
4.3
5.2
3.3
5.7
5.6
3.3
5.6
5.2
25,209
570
-
-
93,089
162,612
-
812
6,590
812
119,680
170,014
385,079
420,220
6,187
16,855
408,121
527,801
10,280
13,885
444,385
614,399
-
-
781
-
-
781
-
-
1,739
1,739
2,520
-
-
781
-
-
781
-
-
1,778
1,778
2,559
Total equity and liabilities
1,584,377
1,630,326
473,647
423,570
The Company made a profit for the year of £107,299,000 (2016: £57,107,000).
These financial statements on pages 119 to 146 were approved by the Board of directors on 1 March 2018 and were signed on its behalf:
Earl Sibley, Director.
116 | Financial statements
-
-
-
-
-
-
-
-
Group statement of changes in equity
Balance at 1 January 2016
Total comprehensive income
Shared equity movement reclassified to the income statement
Issue of share capital
Own shares disposed
Deferred tax on other employee benefits
Share based payments
Dividends paid to shareholders
Own
shares
held
£000
Other
retained
earnings
£000
Total
retained
earnings
£000
Issued
capital
£000
Share
premium
£000
Total
£000
(2,481)
678,682
676,201
67,190
214,368
957,759
109,365
109,365
2,099
2,099
-
-
-
-
109,365
2,099
153
(153)
-
48
-
-
48
1,308
1,308
(55,412)
(55,412)
71
689
-
-
-
-
-
-
-
-
760
-
48
1,308
(55,412)
Total transactions with owners recognised directly in equity
153
(54,209)
(54,056)
71
689
(53,296)
Balance at 31 December 2016
(2,328)
735,937
733,609
67,261
215,057
1,015,927
Balance at 1 January 2017
Total comprehensive income
Issue of share capital
Own shares disposed
Purchase of own shares
Deferred tax on other employee benefits
Share based payments
Dividends paid to shareholders
(2,328)
735,937
733,609
67,261
215,057
1,015,927
100,359
100,359
1,261
(1,261)
-
-
-
(2,575)
-
-
-
-
49
(2,575)
49
2,243
2,243
(60,430)
(60,430)
-
69
-
-
-
-
-
-
100,359
934
1,003
-
-
-
-
-
-
(2,575)
49
2,243
(60,430)
Total transactions with owners recognised directly in equity
(1,314)
(59,399)
(60,713)
69
934
(59,710)
Balance at 31 December 2017
(3,642)
776,897
773,255
67,330
215,991
1,056,576
Company statement of changes in equity
Balance at 1 January 2016
Total comprehensive income
Issue of share capital
Share based payments
Dividends paid to shareholders
Balance at 31 December 2016
Balance at 1 January 2017
Total comprehensive income
Issue of share capital
Share based payments
Dividends paid to shareholders
Balance at 31 December 2017
Attributable to equity holders of the parent
Total
retained
earnings
£000
Issued
capital
£000
Share
premium
£000
Total
£000
135,690
67,190
214,368
417,248
57,107
-
1,308
(55,412)
-
71
-
-
-
57,107
689
-
-
760
1,308
(55,412)
138,693
67,261
215,057
421,011
138,693
67,261
215,057
421,011
107,300
-
2,243
(60,430)
-
69
-
-
-
107,300
934
-
-
1,003
2,243
(60,430)
187,806
67,330
215,991
471,127
Bovis Homes Group PLC | 117
Statements of cash flows
For the year ended 31 December
Cash flows from operating activities
Profit for the year
Depreciation
Revaluation of available for sale financial assets
Available for sale reserve reclassified on disposal
Financial income
Financial expense
Profit on sale of property, plant and equipment
Equity-settled share-based payment expense
Income tax expense
Share of results of Joint Ventures
Decrease/(increase) in trade and other receivables
Decrease in available for sale financial assets
Decrease/(increase) in inventories
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions and retirement benefit obligations
Cash generated from operations
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Interest received
Note
2.1
4.4
4.4
5.3
5.1
5.5
Group
2017
£000
Group
2016
£000
Company
2017
£000
Company
2016
£000
91,295
120,848
107,299
57,107
1,514
1,355
1,696
2,274
1,191
-
-
-
-
-
-
-
(1,337)
(3,035)
(9,038)
(8,888)
8,536
(4,117)
2,243
8,622
(764)
1,308
-
-
-
-
-
-
22,706
33,866
1,740
1,778
20
13,232
27,577
(331)
5,313
9,941
122,097
(130,647)
(104,664)
42,976
(3,685)
7,395
-
-
(49,613)
(4,233)
-
-
-
-
-
-
-
-
178,468
98,957
50,388
45,764
(3,250)
(4,010)
(19,074)
(33,142)
-
-
-
-
156,144
61,805
50,388
45,764
142
45
9,039
8,888
Acquisition of property, plant and equipment
5.4
(1,371)
(1,787)
Proceeds from sale of property, plant and equipment
13,237
2,389
Movement of investment in Joint Ventures
Dividends received from Joint Ventures
Reduction in restricted cash
Net cash generated from investing activities
Cash flows from financing activities
Dividends paid
Proceeds from the issue of share capital
Purchase of own shares
5.5
5.5
2.2
4.5
32
119
-
625
129
7
-
-
-
-
-
-
-
-
-
-
12,159
1,408
9,039
8,888
(60,430)
(55,412)
(60,430)
(55,412)
1,003
(2,575)
760
-
1,003
760
-
-
-
-
Drawdown/(repayment) of bank and other loans
4.3
25,209
(1,999)
Net cash used in financing activities
(36,793)
(56,651)
(59,427)
(54,652)
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
131,510
38,552
170,062
6,562
31,990
38,552
4.1
4.1
-
344
344
-
344
344
118 | Financial statements
Notes to the financial statements
The notes have been grouped into sections under five key categories:
1. Basis of preparation
2. Result for the year
3. Land bank and other operating assets and liabilities
4. Financing
5. Other disclosures
The key accounting policies have been incorporated throughout the notes to the financial statements adjacent to the disclosure to which they relate.
All accounting policies are included within an outlined box.
1.0 Basis of preparation
1.1 General information
Bovis Homes Group PLC (the “Company”) is a company domiciled in the United Kingdom. The consolidated financial statements of the Company for
the year ended 31 December 2017 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in
Joint Ventures.
The financial statements were authorised for issue by the directors on 1 March 2018.
1.2 Basis of accounting
The consolidated financial statements of the Company and the Group have been prepared in accordance with the International Financial Reporting
Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and Companies Act 2006 applicable to
companies reporting under IFRS.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the Company income statement and
statement of comprehensive income.
The accounting policies set out below have been applied consistently to all relevant periods presented in these consolidated financial statements,
including the restatement as described in note 2.
The accounting policies have been applied consistently to the Company and the Group where relevant.
The financial statements are prepared on the historical cost basis except for derivative financial instruments and available for sale financial assets
which are on a fair value basis.
1.3 Going concern
The Directors are satisfied that the Group has sufficient resources to continue in operation for the 12 months from date of approval of these financial
statements. The Directors reviewed detailed financial and covenant compliance forecasts covering the period to December 2018 and summary financial
forecasts for the following two years.
Having started the year with net cash of £38.6 million, the Group generated a strong operating cash flow during 2017, increasing the net cash position
to £144.9 million. As at 31 December 2017, the Group held cash and cash equivalents of £170.1 million and had borrowings of £25.2 million. On
3 December 2015, the Group entered into a new £250.0 million committed revolving credit facility that was extended for a further year both during
2016 and early in 2018. This facility now expires in December 2022 and was fully available for drawdown at 31 December 2017.
For these reasons, the Directors consider it appropriate to prepare the financial statements of the Group on a going concern basis.
1.4 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 December. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on
which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
Associates are any entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated
financial statements include the Group’s share of the comprehensive income and expense of associates on an equity accounted basis, from the
date that significant influence commences until the date that significant influence ceases.
A joint arrangement is an arrangement over which the Group and one or more third parties have joint control. These joint arrangements are in
turn classified as:
• Joint ventures whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for
its liabilities; and
• Joint operations whereby the Group has rights to the assets and obligations for the liabilities relating to the arrangement
The consolidated financial statements include the Group’s share of the comprehensive income and expense of its joint ventures on an equity
accounted basis, from the date that joint control commenced. The Group does not have any joint operations as the current time.
Bovis Homes Group PLC | 119
Notes to the financial statements continued
1.5 Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis
of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and
future periods.
Judgements made by management in the application of adopted IFRSs that have significant effect on the financial statements and estimates with a
significant risk of material adjustment in the next year are discussed below.
Key sources of judgement and estimation uncertainty for the Group
Land held for development and housing work in progress
The Group holds inventories which are stated at the lower of cost and net realisable value. To assess the net realisable value of land held for
development and housing work in progress, the Group completes a financial appraisal of the likely revenue which will be generated when these
inventories are combined as residential properties for sale and sold. Where the financial appraisal demonstrates that the revenue will exceed the costs
of the inventories and other associated costs of constructing the residential properties, the inventories are stated at cost. Where the assessed revenue
is lower, the extent to which there is a shortfall is written off through the income statement leaving the inventories stated at a realisable value. To
the extent that the revenues which can be generated change, or the final cost to complete for the site varies from estimates, the net realisable value
of the inventories may be different. A review taking into account estimated achievable net revenues, actual inventory and costs to complete as at 31
December 2017 has been carried out, which has identified no material net movement in the carrying value of the provision. These estimates were
made by local management having regard to actual sales prices, together with competitor and marketplace evidence, and were further reviewed by
Group management. Should there be a future significant decline in UK house pricing, then further write-downs of land and work in progress may be
necessary. Further detail on the carrying value of inventories is laid out in note 3.1.
Defined benefit pension scheme
The Group has an active defined benefit pension scheme, which is subject to estimation uncertainty. Note 5.7 outlines the way in which this Scheme
is recognised in the Group’s Financial Statements, the associated risks and sensitivity analysis showing the impact of a change in key variables on the
defined benefit obligation.
Customer care provision
Following legal completion, the Group provides a two year warranty that covers any defects which arise during that period. The level of provision per
completion is based on actual costs incurred over the preceding twelve months. Judgement is applied in determining whether this level of provision is
sufficient, or whether it should be adjusted to reflect the level of outstanding customer rectification works at the balance sheet date. Note 5.6 provides
further detail of this provision.
Margin recognition
The gross margin from revenue generated on each of the Group’s individual sites within the year is recognised based on the latest forecast for the gross
margin expected to be generated over the remaining life of that site. The remaining life gross margin is calculated using forecasts for selling prices and all
land, build, infrastructure and overhead costs associated with that site. There is inherent uncertainty and sensitivity to external forces (predominantly house
prices and labour costs) in these forecasts, which are reviewed regularly throughout the year by management and are addressed on pages 30 to 33.
The Company has no sources of estimation uncertainty.
1.6 Segment reporting
The Chief Operating Decision Maker, which is the Board, notes that the Group’s main operation is that of a housebuilder and it operates entirely
within the United Kingdom. There are no separate segments, either business or geographic, to disclose, having taken into account the aggregation
criteria provisions of IFRS8.
1.7 Impact of standards and interpretations effective for the first time
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with
a date of initial application of 1 January 2017:
Amendments to IAS 7 ‘Statement of Cash Flows - Changes in liabilities arising from financing activities’ and Amendment to IAS 12 ‘Recognition of
Deferred Tax Assets for Unrealised Losses’ have both come into effect with no significant impact on the Group.
120 | Financial statements
Notes to the financial statements continued
1.8 Impact of standards and interpretations in issue but not yet effective
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017, and
have not been applied in preparing these financial statements:
• IFRS9 ‘Financial instruments’ replaces IAS39 ‘Financial Instruments: Recognition and Measurement’ and is effective from 1 January 2018. As the
Group disposed of its shared equity assets during 2017 and does not presently hold any complex financial instruments, it is expected that the new
standard will not have a material impact on the Group’s reported results.
• IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’, setting out new revenue recognition
criteria particularly with regard to performance obligations which may have some impact on the timing of revenue recognised by the Group on
certain contracts. The standard will be effective for the period beginning 1 January 2018 and remains subject to industry interpretations and
consensus. However, based on the Group’s assessment of the standard it is not thought to have an impact on private housing sales, which make
up the majority of the Group’s revenue and profit. Land sales, which by their nature vary from year to year, are not expected to be impacted, but
will continue to be reviewed as they occur in future to ensure that the treatment is consistent with the new standard. Housing association sales are
not expected to be impacted significantly, as the new standard allows for recognition over time, which is the Group’s current practice. However,
the nature of the individual contracts will need to be assessed as they are entered into, and could give rise to a difference in timing of revenue
recognition compared to IAS11. If the standard were to be applied to the Group’s 2017 financial statements, it would not have a material impact on
the revenue reported by the Group.
• IFRS16 ‘Leases’ replaces IAS17 ‘Leases’ and is effective from 1 January 2019. The new standard requires all assets held by the Group under lease
agreements of greater than 12 months in duration to be recognised as assets within the Balance Sheet, unless they are considered to be of low
value. Similarly, the present value of future payments to be made under those lease agreements must be recognised as a liability. As the Group is
increasingly entering into lease agreements as part of its strategy to reduce capital employed in its operations, it is expected that the implementation
of the standard will increase both the assets and liabilities of the Group but will not have a material impact on its net assets.
• Amendment to IFRS 2 ‘Share-based payments’, effective from 1 January 2018, which is not expected to have a significant impact on the Group’s
financial statements.
• Amendment to IFRS 4 ‘Insurance Contracts’ regarding the implementation of IFRS 9 ‘Financial Instruments’, effective from 1 January 2018, which
is not expected to have a significant impact on the Group’s financial statements.
• Amendment to IAS 40 ‘Investment Property’, effective from 1 January 2018, which is not expected to have a significant impact on the Group’s
financial statements.
• Annual Improvements 2014-2016, effective from 1 January 2018, which is not expected to have a significant impact on the Group’s
financial statements.
• Amendment to IAS 28 ‘Investments in Associates and Joint Ventures’, effective from 1 January 2019, which is not expected to have a significant
impact on the Group’s financial statements.
• IFRIC 23 Uncertainty over income tax treatments, effective 1 January 2019, which is not expected to have a significant impact on the Group’s
financial statements.
2.0 Result for the year
Revenue
Revenue comprises the fair value of consideration received or receivable, net of value-added tax, rebates and discounts. Revenue does not include
the value of the onward legal completion of properties accepted in part exchange against a new property. The net gain or loss arising from the
legal completion of these part exchange properties is recognised in cost of sales.
Revenue is recognised once the value of the transaction can be reliably measured and the significant risks and rewards of ownership have been
transferred. Revenue is recognised on house sales at legal completion. Revenue is recognised on land sales and commercial property sales from the
point of unconditional exchange of contracts. For affordable housing, revenue and costs are recognised by reference to the stage of completion
of contract activity at the balance sheet date and profit is recognised from the point at which the outcome of the contract is reasonably certain.
When it is probable that the total costs on a construction contract will exceed total contract revenue, the expected loss is recognised as an
expense in the Income Statement immediately.
Where land is sold with material development obligations, the recognition of revenue and profit is deferred until the work is complete.
Rental income is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as
an integral part of the total rental income.
Revenue by type
Private housing
Affordable housing
Land sales
Other
Total
2017
£000
860,616
132,308
32,036
3,263
2016
£000
885,505
137,316
25,830
6,153
1,028,223
1,054,804
For contracts in progress at the balance sheet date, contract costs incurred plus recognised profit minus recognised losses to date amounted to
£425,147,000 (2016: £314,571,000).
Bovis Homes Group PLC | 121
Notes to the financial statements continued
Restatement - costs reclassified from administrative expenses to cost of sales
Following the Group’s structural and strategic review the accounting treatment of all project specific costs related to sales, legal, technical and build
activities have been reviewed. Where these have previously been included in the Group’s administrative expenses we now consider it more appropriate
to treat them as follows. All sales costs will be reclassified within cost of sales (impact on twelve months ended 31 December 2017: £20.7m; impact on
year ended 31 December 2016: £19.2m). All other project related costs identified above will be capitalised into work in progress and released to the
Income Statement as we legally complete homes (impact on twelve months ended 31 December 2017: £7.9m; impact on year ended 31 December
2016: £7.5m). We believe this approach provides reliable and more relevant information. We consider this a change in accounting policy and have
restated prior year comparatives in the Group’s Income Statement in line with IAS8. The Balance Sheet as at 31 December 2016 and the opening
reserves at 1 January 2016 have not been restated as the impact is not considered material.
2.1 Operating profit
Operating profit before financing costs is stated after charging/(crediting):
Depreciation of tangible fixed assets (see note 5.4)
Hire of plant and machinery
Personnel expenses (see note 5.3)
Rental income (included in revenue)
Government grants recognised within cost of sales (see note 4.3)
Exceptional administrative expenses
2017
£000
1,514
8,445
2016
£000
2,274
7,096
70,739
63,472
(408)
(31)
(735)
(21)
Exceptional items are those which, in the opinion of the Board, are material by size and non-recurring in nature and therefore require separate
disclosure within the income statement in order to assist the users of the financial statements in understanding the underlying business
performance of the Group.
Advisory fees resulting from the bid approaches from Redrow plc and Galliford Try plc
Costs relating to the strategic restructuring of the business
Exceptional administrative expenses
2017
£000
2,800
4,012
6,812
2016
£000
-
-
-
During the year, the Group has implemented various fundamental restructuring activities, consistent with the strategic and structural review completed
by the Chief Executive and announced in September 2017 (see page 12). These costs include redundancies and onerous lease costs arising from
merging certain business units, reducing from eight operating regions to seven and office relocations.
The exceptional administrative expenses have reduced the Group’s income tax expense for the year by £772,000 (2016: £nil).
Auditors’ remuneration
Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements
The audit of the Company’s subsidiaries, pursuant to legislation
Non-Audit Fees
Interim review work
Other assurance related services
Fees charged to operating profit before financing costs
2.2 Dividends
The following dividends were paid by the Group:
Prior year final dividend per share of 30.0p (2016: 26.3p)
Current year interim dividend per share of 15.0p (2016: 15.0p)
122 | Financial statements
2017
£000
30
145
25
4
204
2017
£000
40,300
20,130
60,430
2016
£000
25
155
18
4
202
2016
£000
35,273
20,139
55,412
Notes to the financial statements continued
The Board decided to propose a final dividend of 32.5p per share in respect of 2017. The dividend has not been provided for and there are no income
tax consequences.
32.5p per qualifying ordinary share (2016: 30.0p)
2.3 Earnings per share
Profit attributable to ordinary shareholders
Profit for the year attributable to equity holders of the parent
Weighted average number of ordinary shares
Weighted average number of ordinary shares at 31 December
Diluted earnings per share
2017
£000
2016
£000
43,639
40,254
2017
£000
2016
£000
91,295
120,848
2017
2016
134,246,134
134,178,673
The calculation of diluted earnings per share for the year ended 31 December 2017 was based on the profit for the year attributable to ordinary
shareholders of £91,295,000 (2016: £120,848,000) and a weighted average number of ordinary shares outstanding during the year ended
31 December 2017 of 134,566,722 (2016: 134,322,449).
The average number of shares is increased by reference to the average number of potential ordinary shares held under option during the year.
This reflects the number of ordinary shares which would be purchased using the aggregate difference in value between the market value of shares
and the share option exercise price and fair value of future employee services. The market value of shares has been calculated using the average
ordinary share price during the year. Only share options which are expected to meet their cumulative performance criteria have been included in the
dilution calculation.
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares at 31 December
Effect of share options in issue which have a dilutive effect
2017
2016
134,246,134
134,178,673
320,588
143,776
Weighted average number of ordinary shares (diluted) at 31 December
134,566,722
134,322,449
3.0 Land bank and other operating assets and liabilities
This section shows the assets used to generate the Group’s trading performance and the liabilities incurred as a result. Liabilities relating to the Group’s
financing activities are addressed in section 4. Deferred tax assets and liabilities are shown in section 5.2.
3.1 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and
those overheads, not including any general administrative overheads, that have been incurred in bringing the inventories to their present location
and condition. Net realisable value represents the estimated net selling price less estimated total costs of completion of the finished units.
Land held for development, including land in the course of development until legal completion of the sale of the asset, is initially recorded at cost
along with any expected overage. Where, through deferred purchase credit terms, cost differs from the nominal amount which will actually be
paid in settling the deferred purchase terms liability, an adjustment is made to the cost of the land, the difference being charged as a finance cost.
Options purchased in respect of land are capitalised initially at cost and written down on a straight-line basis over the life of the option.
Should planning permission be granted and the option be exercised, the option is not amortised during that year and its carrying value is included
within the cost of land purchased.
Investments in land without the benefit of planning consent, either through purchase of freehold land or non refundable deposits paid on land
purchase contracts subject to residential planning consent, are capitalised initially at cost. Regular reviews are completed for impairment in the
value of these investments, and provision made to reflect any irrecoverable element. The impairment reviews consider the existing use value of the
land and assesses the likelihood of achieving residential planning consent and the value thereof.
Ground rents are held at an estimate of cost based on a multiple of ground rent income, with a corresponding credit created against cost of sales,
in the year in which the ground rent first becomes payable by the leasehold purchaser.
Part exchange properties are held at the lower of cost and net realisable value, and include a carrying value provision to cover the costs of
management and resale. Any profit or loss on the disposal of part exchange properties is recognised within cost of sales in the Group
Income Statement.
Bovis Homes Group PLC | 123
Notes to the financial statements continued
Group
Raw materials and consumables
Work in progress
Part exchange properties
Land held for development (net of provision)
Inventories
2017
£000
5,997
2016
£000
7,092
382,893
372,859
19,692
48,593
913,370
1,020,621
1,321,952
1,449,165
Inventories to the value of £836.2 million were recognised as expenses in the year (2016 restated: £839.7 million - see note 2). Part exchange
properties of £176.9 million (2016: £109.4 million) were disposed of during the year for proceeds of £173.6 million (2016: £109.6 million).
Movement on inventory provision
Balance at 1 January
Land sales - Utilised on specific sites sold in the year
- Unutilised on specific sites sold in the year and so released to the income statement
New provisions recognised on sites still held
New provisions recognised on sites identified for disposal outside of core operating area
Balance at 31 December
2017
£000
3,021
(1,639)
-
2016
£000
6,718
(4,133)
(19)
(1,639)
(4,152)
861
3,300
5,543
455
-
3,021
£8.9 million (2016: £2.0 million) of inventories were valued at net realisable value rather than at historic cost.
3.2 Trade and other receivables
Trade receivables, amounts recoverable on contracts and other debtors do not carry any interest and are stated at their nominal value as reduced
by appropriate allowances for estimated irrecoverable amounts.
Other debtors include amounts receivable from the Government in relation to the Help To Buy scheme.
Current assets
Trade receivables
Amounts recoverable on contracts
Amounts due from subsidiary undertakings
Other debtors
Prepayments and accrued income
Current assets
Group
2017
£000
Group
2016
£000
Company
2017
£000
Company
2016
£000
15,130
19,436
45,191
31,574
-
-
-
-
-
-
463,454
415,620
1,939
22,127
14,426
11,855
-
-
-
-
76,686
84,992
463,454
415,620
The total provision for doubtful receivables is £1.2 million (2016: £1.0 million).
The carrying value of amounts due from subsidiary undertakings represents the Company’s maximum credit risk. The Directors consider these amounts
to be fully receivable at year end.
Receivables which are past due but not impaired are not material.
The Directors consider that the carrying amount of trade receivables approximates to their fair value.
3.3 Trade and other payables
Trade payables
Trade payables on normal terms are not interest bearing and are stated at their nominal value.
Trade payables on extended terms, particularly in respect of land, are recorded at their fair value at the date of acquisition of the asset to which
they relate. The discount to nominal value which will be paid in settling the deferred purchase terms liability is recognised over the period of the
credit term and charged to finance costs using the effective interest rate method.
124 | Financial statements
Notes to the financial statements continued
Government grants
Government grants are recognised in the income statement so as to match with the related costs that they are intended to compensate.
Government grants are included within deferred income.
Non-current liabilities
Trade payables
Other creditors
Current liabilities
Trade payables
Payments on account
Taxation and social security
Other creditors
Accruals
Deferred income
Group
2017
£000
Group
2016
£000
Company
2017
£000
Company
2016
£000
92,630
162,153
459
459
93,089
162,612
-
781
781
-
781
781
307,434
364,522
41,352
13,813
1,903
1,672
1,649
2,077
16,251
17,782
16,490
20,354
385,079
420,220
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total trade and other payables
478,168
582,832
781
781
The Group’s non-current liabilities largely relate to land purchased on extended payment terms. An ageing of land creditor repayments is provided in
note 4.7.
4.0 Financing
This section outlines how the Group manages its capital and related financing activities.
4.1 Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of
the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Bank balances
Call deposits
Cash and cash equivalents in the balance sheet and cash flows
4.2 Available for sale financial assets
Available for sale financial assets - shared equity
Group
2017
£000
Group
2016
£000
Company
2017
£000
Company
2016
£000
363
363
169,699
38,189
170,062
38,552
344
-
344
344
-
344
Receivables on extended terms granted as part of a sales transaction are secured by way of a legal charge on the relevant property, categorised
as an available for sale financial asset, and are stated at fair value. Gains and losses arising from changes in fair value are recognised in the Group
statement of comprehensive income, with the exceptions of impairment losses, the impact of changes in future cash flows and interest calculated
using the ‘effective interest rate’ method, which are recognised directly in the income statement. Where the investment is disposed of, or is
determined to be impaired, the cumulative gain or loss previously recognised in equity is included in the income statement for the period. Given its
materiality, this item was disclosed separately on the face of the balance sheet.
Bovis Homes Group PLC | 125
Notes to the financial statements continued
Non-current asset - available for sale assets
2017
£000
-
2016
£000
27,804
Available for sale financial assets related to legal completions where the Group has retained an interest through agreement to defer recovery
of a percentage of the market value of the property, together with a legal charge to protect the Group’s position. The Group participates in
three schemes.
‘Jumpstart’ schemes are receivable 10 years after recognition with 3% interest charged between years 6 to 10. The ‘HomeBuy Direct’ and
‘FirstBuy’ schemes are operated together with the Government. Receivables are due 25 years after recognition with interest charged from year 6
onwards at a base value of 1.75% plus annual RPI increments. These assets are held at fair value being the present value of expected future cash
flows taking into account the estimated market value of the property at the estimated date of recovery.
Key assumptions for shared equity
Discount rate, incorporating default rate
Average house price inflation per annum for the next three years
Balance at 1 January
Redemptions
Disposals
Revaluation taken through the income statement
Imputed interest
Balance at 31 December
2017
-
-
2017
£000
2016
9.0%
3.0%
2016
£000
27,804
35,303
(5,300)
(9,941)
(22,270)
(1,355)
-
-
1,121
2,442
-
27,804
During the year ended 31 December 2017, the Group disposed of or redeemed assets with a fair value of £27.6m, at a profit of £1.2m, Included
within these figures is the disposal of assets with a fair value of £22.3m to PMM Group on 31 October 2017 for £21.5m, net of transaction costs,
generating a loss on disposal of £0.8m.
4.3 Bank and other loans
Bank borrowings
Interest-bearing bank loans and overdrafts are initially recorded at fair value, net of direct issue costs, and subsequently at amortised cost. Finance
charges are accounted for on an accrual basis to the income statement using the effective interest method and are added to the carrying amount
of the instrument to the extent that they are not settled in the period in which they arise.
Government grants
The benefit on loans with an interest rate below market is calculated as the difference between interest at a market rate and the below market
interest. The benefit is treated as a Government grant.
126 | Financial statements
Notes to the financial statements continued
Interest rate profile of bank and other loans
Revolving credit facility
HCA Loan
Details of facilities
Rate
Facility
maturity
Carrying
value 2017
£000
Carrying
value 2016
£000
LIBOR +120-225 bps
2021
-
EC Base Rate +220bps
2027
25,209
-
-
On 3 December 2015 the Group entered into a £250 million committed revolving credit facility and this was extended for a further one year both
during 2016 and early in 2018, and therefore now expires in December 2022. The facility syndicate comprises six banks. The facility includes a covenant
package, featuring three covenants covering the Group’s gearing ratio, consolidated tangible net worth and interest cover. These covenants are tested
semi-annually as per the previous facility agreement. The overall financing cost of the new arrangement is marginally better than the previous facility.
On 11 April 2017 the Group entered into a loan facility agreement with the Homes and Communities Agency in relation to its development at Stanton
Cross, Wellingborough. The facility has a total aggregate of £35 million which the Group can draw down over a period until 31 March 2019 in order
to support the funding of its infrastructure investment on the development. The Group will then use an agreed proportion of its proceeds from the
development to repay the loan once the aggregate proceeds exceed a threshold level. The Group’s latest estimates indicate that repayments of the loan
will begin in 2021 and that the majority of the repayments will be made in periods beyond 5 years from 31 December 2017.
4.4 Net financing costs
Finance costs are included in the measurement of borrowings at their amortised cost to the extent that they are not settled in the period in which
they arise.
The Group is required to capitalise borrowing costs directly attributable to the acquisition, construction and production of a qualifying asset, as
part of the costs of that asset. Inventories which are produced in large quantities on a repetitive basis over a short period of time are not qualifying
assets. The Group does not generally produce qualifying assets.
Net financing costs recognised in the income statement
Interest income
Net pension finance credit
Imputed interest on available for sale assets
Finance income
Imputed interest on deferred terms land payables
Net pension finance charge
Interest expense
Finance expenses
Net financing costs
Note
5.7
5.7
2017
£000
(216)
-
2016
£000
(321)
(272)
(1,121)
(2,442)
(1,337)
(3,035)
5,118
177
3,241
8,536
7,199
4,967
-
3,655
8,622
5,587
Bovis Homes Group PLC | 127
Notes to the financial statements continued
4.5 Capital and reserves
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Own shares held by ESOP trust
Transactions of the Group-sponsored ESOP trust are included in the Group financial statements. In particular, the trust’s purchases of shares in the
Company are debited directly to equity through an own shares held reserve.
Share capital
Ordinary shares
2017
Number of
shares
2017
Issued capital
£000s
2017
Share premium
£000s
2016
Number of
shares
2016
Issued capital
£000
2016
Share premium
£000s
In issue at 1 January
Issued for cash
134,522,340
67,261
215,057
134,379,661
67,190
214,368
138,410
69
934
142,679
71
689
In issue at 31 December – fully paid
134,660,750
67,330
215,991
134,522,340
67,261
215,057
The holders of ordinary shares (nominal value 50p) are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at meetings of the Company.
Reserve for own shares held
The cost of the Company’s shares held in the ESOP trust by the Group is recorded as a reserve in equity. During the year ended 31 December 2017,
the Group purchased 275,000 shares at a total cost of £2,575,000. There were 133,020 (2016: 16,089) shares awarded under the Group’s long-term
incentive plan that vested during 2017 and accordingly the balance of the own shares held reserve reduced by £1,261,000 (2016: £153,000).
At 31 December 2017, the Group held 387,750 of its own shares (2016: 245,770), with a value on reserve of £3,643,000 (2016: £2,329,000).
The Group has suspended all rights on shares held by the Group in the Company.
4.6 Financial risk management
Group
The Group seeks to manage its capital in such a manner that the Group safeguards its ability to continue as a going concern and to fund its future
development. In continuing as a going concern, it seeks to provide returns for shareholders over the housing market cycle as well as enabling
repayment of its liabilities as a trading business.
The Group’s capital comprises its shareholders’ equity, added together with its net borrowings, or less its net cash, stated before issue costs. A five year
record of its capital employed is displayed on page 131.
Whilst the blended cost of capital is a factor in the Group’s decision making in assessing the right blend of shareholders’ equity and debt financing, the
Group has typically preferred to operate within a framework that features relatively low gearing or cash in hand. This is because the Group recognises
that housebuilding can be cyclical, and higher levels of gearing can create profound liquidity risks. The Group would seek to manage its capital
base through control over expenditure, maintenance of adequate banking facilities, control over dividend payments and in the longer term through
adjustments to its capital structure.
An important part of capital management for the Group is its financial instruments, which comprise cash, bank and other loans and overdrafts.
The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group also utilises financial assets and liabilities
such as trade payables or receivables that arise directly from operations.
The use of these carries risk: interest rate risk, credit risk and liquidity risk. Given that the Group trades exclusively in the UK, there is no material
currency risk. The valuation of the Group’s available for sale financial assets is also impacted by housing market price fluctuations, giving rise to market
price risk.
Company
The Company only trades with other Group entities and is only exposed to credit risk on those intercompany balances.
a. Interest rate risk
Exposure to interest rate risk arises in the normal course of the Group’s business and interest rate swaps are used where appropriate to hedge exposure
to fluctuations in interest rates. The Group has no exposure to currency risk as all its financial assets and liabilities are denominated in sterling.
Throughout the year, the Group’s policy has been that no trading in financial instruments shall be undertaken.
128 | Financial statements
Notes to the financial statements continued
Effective interest rates and repricing analysis
The interest rate profile of the Group’s interest bearing financial instrument is set out in note 4.3.
Sensitivity analysis
In managing interest rates, the Group aims to reduce the impact of short-term fluctuations in the Group’s earnings, given that Group borrowings are
variable in terms of interest rate. Over the longer-term, however, permanent changes in interest rates would have an impact on consolidated earnings.
For the year ended 31 December 2017, a general increase of one percentage point in interest rates applying for the full year would not have a material
impact on the financial statements.
b. Credit risk
The Group’s exposure to credit risk is limited by the fact that the Group generally receives cash at the point of legal completion of its sales. There are
certain categories of revenue where this is not the case: for instance, housing association revenues or land sales. The largest single amount outstanding
at the year end was £4.8 million (2016: £9.6 million). The amount is secured against consented land. The Group retains these outstanding balances as
trade and other receivables. The carrying value of trade and other receivables equates to the Group’s exposure to credit risk. This is set out in note 3.2.
The Group’s trade and other receivables and available for sale assets are secured against the following:
Consented land
Second charge against property
Unsecured
2017
£000
7,027
832
2016
£000
17,282
28,762
69,659
72,510
77,518
118,554
In managing risk the Group assesses the credit risk of its counterparties before entering into a transaction. This assessment is based upon management
knowledge and experience. In the event that land is disposed of the Group seeks to mitigate any credit risk by retaining a charge over the asset
disposed of, so that in the event of default, the Group is able to seek to recover its outstanding asset.
Company
The Company’s exposure to credit risk is limited as a result of all outstanding balances relating to companies within the Group.
c. Liquidity risk
The Group’s banking arrangements outlined in note 4.3 are considered to be adequate in terms of flexibility and liquidity for its medium term cash
flow needs, thus mitigating its liquidity risk. The Group’s approach to assessment of liquidity risk is outlined in the going concern sub-section in the risk
management section on page 28.
d. Housing market price risk
The performance of the UK housing market affects the valuation of certain of the Group’s non-financial assets and liabilities and the critical judgements
applied by management in these financial statements, including the valuation of land and work in progress.
The Group’s financial assets and liabilities are summarised below:
31 December 2017
Non-derivative financial assets
Restricted cash
Trade and other receivables
Cash and cash equivalents
Non-derivative financial liabilities
Bank and other loans
Trade and other payables
Linked to UK
housing market
£000
Not linked to UK
housing market
£000
Total
£000
-
832
-
-
-
1,414
76,686
1,414
77,518
170,062
170,062
(25,209)
(25,209)
(478,168)
(478,168)
832
(255,215)
(254,383)
Bovis Homes Group PLC | 129
Notes to the financial statements continued
31 December 2016
Non-derivative financial assets
Restricted cash
Trade and other receivables
Available for sale financial assets
Cash and cash equivalents
Non-derivative financial liabilities
Trade and other payables
4.7 Financial instruments
Fair values
Linked to UK
housing market
£000
Not linked to UK
housing market
£000
Total
£000
1,444
90,750
27,804
38,552
1,444
90,750
-
38,552
-
-
27,804
-
-
(582,832)
(582,832)
27,804
(452,086)
(424,282)
There is no material difference between the carrying value of financial instruments shown in the balance sheet and their fair value.
Estimation of fair values
The following summarises the major methods and assumptions used in estimating the fair values of financial instruments:
Land purchased on extended payment terms
When land is purchased on extended payment terms, the Group initially records it at its fair value with a land creditor recorded for any outstanding
monies based on this fair value assessment. Fair value is determined as the outstanding element of the price paid for the land discounted to present
day. The difference between the nominal value and the initial fair value is amortised over the period of the extended credit term and charged to finance
costs using the ‘effective interest’ rate method, increasing the value of the land creditor such that at the date of maturity the land creditor equals the
payment required.
Land creditor
(estimated ageing)
2017
2016
Bank and other loans
Balance at
31 Dec
£000
Total contracted
cash payment
£000
Due within
1 year
£000
Between
1-2 years
£000
Between
2-3 years
£000
246,742
252,183
168,297
44,377
11,248
343,309
350,041
196,511
120,954
15,135
Between
3-4 years
£000
8,321
3,612
Between
4-5 years
£000
Due beyond
5 years
£000
4,390
1,979
15,550
11,850
Fair value is calculated based on discounted expected future principal and interest flows. See note 4.3 for further details.
Trade and other receivables / payables
Other than land creditors, other financial liabilities and available for sale financial assets, the nominal value of trade receivables and payables is deemed
to reflect the fair value. This is due to the fact that transactions which give rise to these trade receivables and payables arise in the normal course of
trade with industry standard payment terms.
Interest rates used for determining fair value
The Group uses an instrument-specific market-assessed interest rate to determine the fair value of financial instruments.
The following table provides an analysis of financial assets and liabilities that are measured subsequent to initial recognition at fair value, grouped into
Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets;
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset,
either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset/liability that are not based on
observable market data (unobservable inputs).
130 | Financial statements
Notes to the financial statements continued
31 December 2017
Assets
Available for sale financial assets
Liabilities
31 December 2016
Assets
Available for sale financial assets
Liabilities
Level 1
£000
Level 2
£000
Level 3
£000
Group
£000
-
-
-
-
-
-
-
-
Level 1
£000
Level 2
£000
Level 3
£000
Group
£000
-
-
-
-
27,804
27,804
27,804
27,804
The Group’s only level 3 financial instruments relate to available for sale financial assets - shared equity. A reconciliation between the brought forward
and carried forward values is shown in note 4.2.
5.0 Other disclosures
This section includes all disclosures which are required by IFRS or the Companies Act which have not been included elsewhere in the financial
statements.
5.1 Income tax expense
Income tax comprises the sum of the tax currently payable or receivable and deferred tax. Income tax is recognised in the income statement except
to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Recognised in the income statement
Current tax
Current year
Adjustments for prior years
Deferred tax
Origination and reversal of temporary differences
Adjustments for prior year
Total income tax in income statement
Reconciliation of effective tax rate
Profit before tax
Note
2017
£000
2016
£000
23,976
(1,926)
22,050
(2,299)
2,955
22,706
32,429
(2,293)
30,136
(1,126)
4,856
33,866
5.2
5.2
2017
%
2017
£000
2016
%
2016
£000
114,001
154,714
Income tax using the domestic corporation tax rate
19.25
21,945
20.0
30,943
Non-deductible expenses and disposal of ineligible assets
Other
Change in tax rate
Adjustments to the tax charge in respect to the prior year
Total tax expense
(0.3)
(0.0)
0.1
0.9
(388)
7
113
1,029
0.5
(0.2)
(0.1)
1.7
856
(354)
(142)
2,563
19.9
22,706
21.9
33,866
Bovis Homes Group PLC | 131
Notes to the financial statements continued
In the year ended 31 December 2016, Bovis Homes Limited recognised a provision for customer care house maintenance which was prudently treated
as a general provision in the Company’s draft corporation tax computation. When the Company’s final corporation tax computation was prepared
the provision was reviewed and treated as a specific provision as the provision was FRS 101 compliant and was based on an analysis by site of the
expected house maintenance expenditure required. During the year Bovis Homes Limited agreed with HM Revenue & Customs to close an enquiry into
the Company’s corporation tax returns. This resulted in additional corporation tax payable in the years ended 31 December 2015, 2016 and 2017 and
ending 31 December 2018. Consequently the tax charge in the income statement includes prior year adjustments to reflect the release of the deferred
tax asset in respect of the customer care provision and the creation of a deferred tax liability in respect of tax charges that have crystallised in the
current period and will crystallise in the year ending 31 December 2018 as a result of the closure of HM Revenue & Customs enquiry.
Recognised directly in Group statement of changes in equity or in the Group statement of comprehensive income
Relating to actuarial movements on pension scheme (Group statement of comprehensive income)
Relating to share-based payments (Group statement of changes in equity)
Relating to available for sale financial assets (Group statement of comprehensive income)
Relating to available for sale financial assets (Group statement of changes in equity)
Deferred tax recognised directly in Group statement of changes in equity or the
Group statement of comprehensive income
5.2 Tax assets and liabilities
Note
5.2
5.2
5.2
5.2
2017
£000
(1,630)
49
(288)
-
2016
£000
2,624
(8)
-
909
(1,869)
3,525
The tax currently payable or receivable is based on taxable profit or loss for the year and any adjustment to tax payable or receivable in respect
of previous years. Taxable profit or loss differs from net profit or loss as reported in the income statement because it excludes items of income
or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability or
asset for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from non-tax deductible goodwill, from the initial recognition of assets and liabilities in a
transaction that affects neither the tax profit nor the accounting profit, and from differences relating to investments in subsidiaries to the extent
that they will probably not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are
expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement,
except when it relates to items charged or credited directly to reserves, in which case the deferred tax is also dealt with in reserves.
Current tax assets and liabilities
The current liability of £16,855,000 (2016: £13,885,000) represents the remaining balance of income taxes payable in respect of current and prior years.
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Group
Property, plant and equipment
Non-current trade payables
Available for sale financial assets
Employee benefits - pensions
Employee benefits - share-based payments
Provisions
Inventories
Adjustment on sale to Joint Venture
Assets
Liabilities
Net
2017
£000
2016
£000
-
-
-
-
737
330
-
372
-
-
-
1,120
132
1,407
-
372
2017
£000
(113)
(24)
(625)
(359)
-
-
(888)
-
2016
£000
(273)
(27)
(714)
-
-
-
(62)
-
2017
£000
(113)
(24)
(625)
(359)
737
330
(888)
372
2016
£000
(273)
(27)
(714)
1,120
132
1,407
(62)
372
Tax assets/(liabilities)
1,439
3,031
(2,009)
(1,076)
(570)
1,955
132 | Financial statements
Notes to the financial statements continued
Movement in temporary differences during the year
Group
Property, plant and equipment
Trade payables
Available for sale financial assets
Employee benefits - pensions
Employee benefits - share-based payments
Provisions
Inventories
Adjustment on sale to Joint Venture
Movement in temporary differences
Group
Property, plant and equipment
Trade payables
Available for sale financial assets
Employee benefits - pensions
Employee benefits - share-based payments
Provisions
Inventories
Adjustment on sale to Joint Venture
Movement in temporary differences
Factors affecting future tax charge
Balance
1 Jan 2017
£000
Recognised
in income
£000
Recognised
in equity
£000
Balance
31 Dec 2017
£000
(273)
(27)
(714)
1,120
132
160
3
377
151
556
1,407
(1,077)
(62)
372
(826)
-
-
-
(288)
(1,630)
49
-
-
-
1,955
(656)
(1,869)
(113)
(24)
(625)
(359)
737
330
(888)
372
(570)
Balance
1 Jan 2016
£000
Recognised
in income
£000
Recognised
in equity
£000
Balance
31 Dec 2016
£000
(258)
(15)
2,152
(2,179)
-
-
970
(2,593)
909
(273)
(27)
(714)
(1,423)
480
18
(216)
437
(81)
(340)
1,389
154
(65)
2,624
1,120
(8)
-
-
-
132
1,407
(62)
372
2,160
(3,730)
3,525
1,955
UK corporation tax rate reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October
2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Company’s
future current tax charge accordingly. The deferred tax asset at 31 December 2017 has been calculated based on these rates.
Employee benefits
The Group recognises the deficit or surplus on its defined benefits pension scheme under the requirements of IAS19 (Revised): ‘Employee benefits’.
This has generated a surplus of £2.1 million (2016: deficit of £6.6 million). As at 31 December 2017, a deferred tax liability of £359,000 (2016 tax
asset: £1,120,000) was recognised.
Bovis Homes Group PLC | 133
Notes to the financial statements continued
5.3 Directors and employees
The weekly average number of employees of the Group, all of whom were engaged in the United Kingdom on the Group’s principal activity, together
with personnel expenses, are set out below.
Average staff numbers - Group
Average staff numbers
The Company had no employees during 2017 (2016: nil)
A breakdown of staff numbers split by type of role is included on page 40.
Personnel expenses - Group
Wages and salaries
Compulsory social security contributions
Contributions to defined contribution plans
Increase in expenses related to defined benefit plans
Equity-settled share-based payments
Personnel expenses
The Company had no personnel expenses during 2017 (2016: nil)
Share-based payments
The Group has applied the requirements of IFRS2: “Share-based payments”.
2017
1,297
2016
1,186
2017
£000
2016
£000
59,405
54,013
6,556
1,250
1,285
2,243
5,926
1,103
1,122
1,308
70,739
63,472
The Group issues equity-settled share-based payments to certain employees in the form of share options over shares in the Parent Company.
Equity-settled share-based payments are measured at fair value at the date of grant calculated using an independent option valuation model,
taking into account the terms and conditions upon which the options were granted. The fair value is expensed on a straight line basis over the
vesting period, based on the Group’s estimate of shares that will eventually vest, with a corresponding credit to equity except when the share-
based payment is cancelled where the charge will be accelerated.
Movements in the number of share options outstanding and their related weighted average exercise prices
2017
2016
Average
exercise price
in £ per share
option
Share
options
£000
Average
exercise price
in £ per share
option
-
-
-
-
-
737
918
(145)
(133)
1,377
-
-
-
-
-
Share
options
£000
665
322
(236)
(14)
737
Long Term Incentive Plan
At 1 January
Granted
Lapsed
Exercised
At 31 December
134 | Financial statements
Notes to the financial statements continued
Executive and other share options
2017
2016
Average
exercise price
in £ per share
option
Share
options
£000
Average
exercise price
in £ per share
option
Share
options
£000
At 1 January
Granted
Lapsed
Exercised
At 31 December
Save As You Earn
At 1 January
Granted
Lapsed
Exercised
At 31 December
8.02
417
8.59
-
8.53
7.30
9.20
275
-
(53)
(69)
153
-
8.85
5.42
8.59
2017
2016
Average
exercise price
in £ per share
option
Share
options
£000’s
Average
exercise price
in £ per share
option
7.27
6.12
6.73
7.22
6.56
357
397
(189)
(69)
496
6.97
7.12
7.45
5.23
7.27
-
(62)
(80)
275
Share
options
£000’s
302
166
(49)
(62)
357
Out of the 2,026,000 outstanding options (2016: 1,369,000), 164,000 options (2016: 177,000) were exercisable.
Options exercised in 2017 resulted in 271,000 shares (2016: 156,000) being issued at a weighted average share price of £3.71 each
(2016: £4.84 each).
Expiry date and exercise price of share options outstanding at the end of the year
Long Term Incentive Plan
Grant vest
2011-14
2012-15
2013-16
2013-16
2014-17
2014-17
2016-18
2016-18
2016-18
2017-19
2016-19
2017-18
2017-21
Exercise price in
£ per share
Expiry date
option
2017 Share
options
£000
2016 Share
options
£000
15/03/2021
28/02/2022
26/02/2023
20/08/2023
25/02/2024
19/08/2024
24/02/2025
18/08/2025
16/09/2025
23/02/2026
16/08/2026
02/05/2027
08/09/2027
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14
16
23
8
19
2
136
33
0
180
28
154
764
14
16
83
16
165
33
142
33
7
200
28
-
-
1,377
737
Bovis Homes Group PLC | 135
Notes to the financial statements continued
Executive and other share options
Grant vest
2010-13
2011-14
2012-15
2013-16
2014-17
2016-18
Save As You Earn
Grant vest
2012-17
2013-18
2014-17
2014-19
2016-18
2016-20
2017-19
2016-21
2017-20
2017-22
Exercise price in
£ per share
2017
Share options
2016
Share options
Expiry date
option
£000
£000
25/08/2017
01/09/2018
22/08/2019
21/08/2020
20/08/2021
3.38
3.79
5.02
7.73
8.53
19/08/2022
11.29
-
9
11
16
46
71
10
14
26
42
89
94
-
153
275
Exercise price in
£ per share
Expiry date
option
2017 Share
options
£000
2016 Share
options
£000
29/09/2017
23/09/2018
02/11/2017
02/11/2019
24/09/2018
24/09/2020
24/09/2019
24/09/2021
24/09/2020
24/09/2022
4.57
5.88
7.97
7.97
7.66
7.66
7.12
7.12
6.12
6.12
-
17
-
4
63
20
71
15
245
61
496
13
20
50
11
83
28
116
36
-
-
357
The weighted average fair value of the options granted during the period determined using the Black Scholes model was £9.12 per option
(2016: £4.85). The significant inputs into the model were a weighted average share price of £11.61 (2016: £8.21) at the grant date, the exercise price
shown in the table above, volatility of 37.12% (2016: 36.38%), an expected option life of 5 years (2016: 7 years) and an annual risk-free rate
of 0.21% (2016: 0.11%). The volatility is measured at the standard deviation of continuously compounded share returns, based on statistical analysis
of daily share prices over the last 3 years.
Share based payments expense in the income statement
Long Term Incentive Plan
Executive and other share options
Save As You Earn share options
2017
£000
765
941
537
2016
£000
957
116
235
Total expense recognised as personnel expenses
2,243
1,308
136 | Financial statements
Notes to the financial statements continued
Information relating to directors’ remuneration, compensation for loss of office, long term incentive plan, share options and pension entitlements
appears in the directors’ remuneration report on pages 68 to 80. The directors are considered to be the only key management personnel. A summary
of key management remuneration is as follows:
Wages and salaries
Compulsory social security contributions
Contributions to defined contribution plans
Key management remuneration
Details of the equity settled share based schemes are set out below.
Long Term Incentive Plan
2017
£000
928
130
52
2016
£000
1,383
185
90
1,110
1,658
A long term incentive plan for executive directors and senior executives was approved by shareholders at the 2010 Annual General Meeting. Two
grants of awards under this plan were made in 2017. Details of the vesting conditions of these awards are laid out in the directors’ remuneration report
which can be found on pages 68 to 80.
Project 200 Incentive plan
The Project 200 incentive plan was implemented for members of the executive management team during 2017, and is designed to support the Group’s
programme of balance sheet optimisation and reduction in capital reduction in order to facilitate the potential return of capital to shareholders through
special dividends. Details of the performance targets and other conditions are contained in the Remuneration Committee report on page 92, and the
scheme will be submitted to shareholders for approval at the 2018 AGM so as to enable the Group Finance Director to participate.
Share options
The Group introduced a Share Option Plan in 2007 designed to provide middle management with effective incentivisation. Executive directors of the
Company do not participate. This plan was approved by shareholders at the 2007 Annual General Meeting.
Save As You Earn share options
The Bovis Homes Group PLC 2007 Save As You Earn Option Scheme was established in 2007. Share options held in the Save As You Earn Option
Scheme are not subject to performance conditions and may under normal circumstances be exercised during the six months after maturity of the
agreement. Save As You Earn share options are generally exercisable at an exercise price which includes a 20% discount to the market price of the
shares at the date of grant.
Bovis Homes Group PLC | 137
Notes to the financial statements continued
5.4 Property, plant and equipment
Plant, property and equipment is recorded at prime cost less accumulated depreciation. The sub-categories of PPE are depreciated as follows:
• Freehold buildings on a 2% straight line basis;
• Plant, machinery and vehicles on a 33.3% reducing balance basis; and
• Furniture, fixtures and fittings on a 25% reducing basis, other than computer equipment which is depreciated on a straight line basis over
3 years.
Cost
Year ended 31 December 2017
Opening balance
Additions
Disposals
Closing
Accumulated depreciation
Opening
Charge for the year
Disposals
Closing
Cost
Year ended 31 December 2016
Opening balance
Additions
Disposals
Closing
Accumulated depreciation
Opening
Charge for the year
Disposals
Closing
Net book value at 31 December
2017
2016
138 | Financial statements
Freehold
buildings
£000
Furniture,
fittings and
equipment
£000
Plant,
machinery
and vehicles
£000
Total
£000
9,802
3,871
12,629
26,302
-
514
857
1,371
(7,769)
(760)
(13,207)
(21,736)
2,033
3,625
279
5,937
2,057
3,060
132
367
9,315
1,015
14,432
1,514
(1,796)
(750)
(10,066)
(12,612)
393
2,677
264
3,334
Freehold
buildings
£000
Furniture,
fittings and
equipment
£000
Plant,
machinery
and vehicles
£000
Total
£000
11,676
3,282
13,492
28,450
-
(1,874)
602
(13)
1,185
1,787
(2,048)
(3,935)
9,802
3,871
12,629
26,302
2,258
2,475
193
(394)
595
(10)
9,735
1,486
14,468
2,274
(1,906)
(2,310)
2,057
3,060
9,315
14,432
1,640
7,745
948
811
15
2,603
3,314
11,870
Notes to the financial statements continued
During the year ended 31 December 2017, the Group disposed of a number of its plant, property and equipment assets as part of its strategy to
reduce capital employed in its operations, including:
• Office buildings at Coleshill (net book value £1,240,000; profit £90,000), Bishops Cleeve (book value £1,380,000; profit £1,830,000)
and Eden Point (book value £3,350,000; loss £330,000).
• Site accommodation assets with a net book value of £1,950,000 at a profit of £1,450,000.
• Forklifts and other site machinery with a net book value of £1,190,000 at a profit of £1,060,000.
The total of future minimum lease payments under non-cancellable operating lease rentals are payable as follows:
Within one year
Between one and five years
Over five years
5.5 Investments
Fixed asset investments
Property
£000
1,102
3,910
4,851
9,863
Plant, machinery
and vehicles
£000
4,955
10,276
-
15,231
Total
£000
6,057
14,186
4,851
25,094
Investments in subsidiaries are carried at cost less impairment. The Parent Company accounts for the share based payments granted to subsidiary
employees as an increase in the cost of its investment in subsidiaries.
Subsidiary undertakings
Interest in subsidiary undertakings’ shares at cost (100% ownership of ordinary shares)
-
-
9,849
7,606
Group
2017
£000
Group
2016
£000
Company
2017
£000
Company
2016
£000
Investments accounted for using the equity method
Interest in Joint Ventures - equity
- loan
Other investments
4,981
5,259
3,714
3,505
-
-
-
-
8,695
8,764
9,849
7,606
22
22
-
-
8,717
8,786
9,849
7,606
Bovis Homes Group PLC | 139
Notes to the financial statements continued
The subsidiary and associated undertakings in which the Group has interests are incorporated in Great Britain. In each case their principal activity is
related to housebuilding and estate development.
The Group has thirty one subsidiaries, which are listed below.
Registered office
Country of incorporation
Ownership interest in ordinary shares
2017 %
2016 %
Bovis Homes (Quest) Company Limited
Bovis Homes Limited
Bovis Country Homes Limited
Bovis Homes (Broadbridge Heath) Limited
Bovis Homes (New Ash Green) Limited
Bovis Homes BVC Limited
Bovis Homes Cornwall Limited
Bovis Homes Developments Limited
Bovis Homes Devon Limited
Bovis Homes Eastern Limited
Bovis Homes Freeholds Limited
Bovis Homes Insulation Limited
Bovis Homes Midlands And Northern Limited
Bovis Homes Pension Scheme Trustee Limited
Bovis Homes Projects Limited
Bovis Homes Scotland Limited
Bovis Homes South East Limited
Bovis Homes Southern Limited
Bovis Homes Wessex Limited
Elite Homes Group Limited
Elite Homes (North West) Limited
Gigg Lane Limited
Elite Homes (Yorkshire) Limited
H.Newbury & Son (Builders) Limited
Kilbride Tavistock Limited
Nether Hall Park Open Space Management Company Limited
Orchard Homes (Pitt Manor) Limited
Oxford Land Limited
Page Johnson Properties Limited
R.T.Warren (Builders, St.Albans) Limited
Unitpage Limited
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
67
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
67
100
100
100
At 31 December 2017 the Group had an interest in the following Joint Ventures which have been equity accounted to 31 December and are registered
and operate in England and Wales.
Registered office
Country of incorporation
Ownership interest in ordinary shares
2017 %
2016 %
Bovis Peer LLP
IIH Oak Investors LLP
Bishops Park Limited
Rissington Management Company Limited
Significant holdings in undertakings other than subsidiary undertakings
Berkshire Land Limited
Bishop's Stortford North Consortium Limited
C.C.B.(Stevenage) limited
Haydon Development Company Limited
Oxfordshire Land Limited
140 | Financial statements
1
4
1
3
1
5
6
7
8
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
50
26
50
50
33
25
33
39
25
50
26
50
50
33
20
33
39
25
Notes to the financial statements continued
Registered office
1. The Manor House, North Ash Road, New Ash Green, Longfield, Kent, DA3 8HQ
2. C/o Gilliespie MacAndrew LLP, 5 Atholl Crescent, Edinburgh, Scotland, EH3 8EJ, United Kingdom
3. Cowley Business Park, Cowley, Uxbridge, Middlesex, UB8 2AL
4. New Zealand House 15th Floor, 80 Haymarket, London, United Kingdom, SW1Y 4TE
5. St Bride’s House, 10 Salisbury Square, London EC4Y 8EH
6. Croudace House, Tupwood Lane, Caterham, Surrey, CR3 6XQ
7. 6 Drakes Meadow, Penny Lane, Swindon, Wiltshire, SN3 3LL
8. Persimmon House, Fulford, York, YO19 4FE
The movement on the investment in the material Joint Venture (Bovis Peer LLP) during the year is as follows:
At the start of the year
Share of results
Dividend received
At the end of the year
Summarised financial information relating to the material Joint Venture is as follows:
Non-current assets
Current assets
- Cash and cash equivalents included in current assets
Current liabilities
- Current financial liabilities included in current liabilities
Non-current liabilities
- Non-current financial liabilities included in current liabilities
Net assets of Joint Venture
Group share of net assets recognised in the Group balance sheet at 31 December
Revenue
Costs
Operating profit
Revaluation of properties
Interest expense
Interest income
Profit before taxation
Income tax expense
Profit for the year
Group share of profit for the year recognised in the Group income statement
Group share of IIH Oak Investors LLP (loss)/profit for the year recognised in the Group income statement
Share of (loss)/profit of Joint Ventures
2017
£000
4,670
-
(119)
4,551
2016
£000
4,555
244
(129)
4,670
2017
£000
2016
£000
31,248
32,190
1,178
1,082
(20,375)
(20,236)
-
-
12,051
6,025
1,767
(1,071)
696
-
(697)
1
-
-
-
-
(20)
(20)
747
607
(135)
-
(20,920)
(20,920)
11,882
5,941
1,750
(560)
1,190
-
(703)
1
488
-
488
244
87
331
The material Joint Venture has no significant contingent liabilities to which the Group is exposed and the Group has no significant contingent liabilities
in relation to its interest in the material Joint Venture.
Bovis Homes Group PLC | 141
Notes to the financial statements continued
Transactions with Bovis Peer LLP and IIH Oak Investors LLP
Bovis Homes Limited is contracted to provide property and letting management services to Bovis Peer LLP. Fees charged in the period, inclusive of VAT,
were £169,000 (2016: £157,000). None of these fees are outstanding at 31 December 2017 (2016: nil).
In 2014, Bovis Homes Limited entered into a Joint Venture arrangement with IIH Oak Investors LLP to hold 190 homes under a private rental scheme.
As at 31 December 2017, loans of £3,714,314 (2016: £3,505,000) are outstanding with IIH Oak Investors at an interest rate of 6%. Interest charges
made in respect of loans were £214,000 (2016: £220,000)
5.6 Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it
is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
As at 1 January 2017
Additional provisions made
Amounts used
As at 31 December 2017
Customer
care costs
(see note 1.5)
£000
Restructuring
costs
(see note 2.1)
£000
8,206
3,500
-
2,074
Bad debt
£000
774
897
Other
£000
2,112
1,603
Total
£000
11,092
8,074
(10,321)
-
(508)
(1,338)
(12,167)
1,385
2,074
1,163
2,377
6,999
Of the total provisions detailed above, £5,544,000 are expected to be utilised within the next year (2016: £10,280,000).
5.7 Employee benefits
The Group accounts for pensions and similar benefits under IAS 19 (Revised): “Employee benefits”. In respect of defined benefit schemes, the
net obligation is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and
prior periods, such benefits measured at discounted present value, less the fair value of the scheme assets. The discount rate used to discount
the benefits accrued is the yield at the balance sheet date on AA credit rated bonds that have maturity dates approximating to the terms of the
Group’s obligations. The calculation is performed by a qualified actuary using the Projected Unit Method. The operating and financing costs of
such plans are recognised separately in the income statement; service costs are spread systematically over the lives of employees and financing
costs and credits are recognised in the periods in which they arise. All actuarial gains and losses are recognised immediately in the Group
statement of comprehensive income.
Payments to defined contribution schemes are charged as an expense as they fall due.
Pension cost note
The Company operates a UK registered trust based pension scheme that provides defined benefits. Pension benefits are linked to the members’ final
pensionable salaries and service at their retirement (or date of leaving if earlier). The Trustees are responsible for running the Scheme in accordance with
the Scheme’s Trust Deed and Rules, which sets out their powers. The Trustees of the Scheme are required to act in the best interest of the beneficiaries
of the Scheme. There is a requirement that one-third of the Trustees are nominated by the members of the Scheme.
There are three categories of pension scheme members:
• Active members: currently employed by the Company
• Deferred members: former employees of the Company
• Pensioner members: in receipt of pension.
The defined benefit obligation is valued by projecting the best estimate of future benefit outgoings (allowing for future salary increases for active
members, revaluation to retirement for deferred members and annual pension increases for all members) and then discounting to the balance
sheet date. The majority of benefits receive increases linked to inflation (subject to various caps). The valuation method is known as the Projected
Unit Method. The approximate overall duration of the Scheme’s defined benefit obligation as at 31 December 2017 was 18 years.
142 | Financial statements
Notes to the financial statements continued
Risks
Through the Scheme, the Company is exposed to a number of risks:
• Asset volatility: the Scheme’s defined benefit obligation is calculated using a discount rate set with reference to corporate bond yields, however the
Scheme invests significantly in equities and other growth assets. These assets are expected to outperform corporate bonds in the long term, but
provide volatility and risk in the short term.
• Inflation risk: a significant proportion of the Scheme’s defined benefit obligation is linked to inflation, therefore higher inflation will result in a higher
defined benefit obligation (subject to the appropriate caps in place). The majority of the Scheme’s assets are either unaffected by inflation, or only
loosely correlated with inflation, therefore an increase in inflation would also increase the deficit. However, the caps in place limit the potential impact
of higher inflation.
The Trustees and Company manage risks in the Scheme through the following strategies:
• Diversification: investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level
of assets.
• Investment strategy: the Trustees are required to review their investment strategy on a regular basis.
• Pensionable Salary cap: Pensionable Salary increases are capped at 2.5% pa. Therefore, the impact on the Scheme of the Company granting salary
increases above 2.5% is limited.
Retirement benefit obligations
The Group makes contributions to one defined benefit scheme that provides pension benefits for employees upon retirement.
Present value of funded obligations
Fair value of plan scheme assets
Recognised (asset)/liability for defined benefit obligations
Movements in the net (asset)/liability for defined benefit obligations recognised in the balance sheet
Net liability/(asset) for defined benefit obligations at 1 January
Contributions received
Expense recognised in the income statement
(Gain)/loss recognised in equity
Net (asset)/liability for defined benefit obligations at 31 December
The cumulative loss recognised in equity to date is £12.5 million (2016: £21.8 million).
Change in defined benefit obligation over the year
Defined benefit obligation at beginning of year
Net interest cost
Current service cost
Actual member contributions
Actual benefit payments by the scheme
(Gain)/loss on change of assumptions:
Actuarial (gains): experience differing from that assumed
Actuarial (gains): changes in demographic assumptions
Actuarial (gains): changes in financial assumptions
Defined benefit obligation at end of year
2017
£000
2016
£000
124,244
125,594
(126,355)
(119,004)
(2,111)
6,590
2017
£000
6,590
(876)
1,462
(9,287)
(2,111)
2016
£000
(7,117)
(1,250)
850
14,107
6,590
2017
£000
2016
£000
125,594
102,160
3,228
3,837
982
114
828
133
(4,016)
(3,375)
(1)
(2,609)
(1,520)
(1,463)
952
24,994
124,244
125,594
Bovis Homes Group PLC | 143
Notes to the financial statements continued
Change in scheme assets over the year
Fair value of scheme assets at beginning of year
Interest income
Actual benefit payments by the scheme
Actual Group contributions
Actual member contributions
Gain on assets
Administration costs
2017
£000
2016
£000
119,004
109,277
3,051
(4,016)
876
114
7,629
(303)
4,109
(3,375)
1,250
133
7,904
(294)
Fair value of scheme assets at end of year
126,355
119,004
The major categories of scheme assets are as follows:
Return seeking
Equities
Other
Property
Cash
Liability driven instruments
Total market value of assets
2017
£000
2016
£000
77,698
69,603
10,724
233
37,700
11,409
23,682
14,310
126,355
119,004
All pension scheme assets have a quoted market price in an active market, apart from property investments, which are directly held.
During 2016, scheme assets were invested in cash and liability driven instruments (“LDIs”), moving away from bonds and gilts, and in November 2017
further scheme assets were invested in LDIs in order to increase the level of liability hedging. The liabilities within a defined benefit pension scheme
are particularly sensitive to changes in the discount rate applied to future liabilities (which is determined by the long term yield on investment grade
corporate bonds or gilts) and the level of inflation (see sensitivity analysis table below). LDIs aim to reduce the exposure of a pension scheme to these
risks by holding assets which behave in the same way as the scheme’s liabilities when interest rates or inflation, or future expectations of them, change.
Change in
assumption
Change in defined
benefit obligation
+0.5%pa / -0.5%pa
+0.5%pa / -0.5%pa
+0.5%pa / -0.5%pa
+1 year
-8% / +9%
+4% / -3%
0%
+3%
Sensitivity analysis
Assumption
Discount rate
RPI and CPI inflation
Future salary increases
Assumed life expectancy
144 | Financial statements
Notes to the financial statements continued
Limitations of the sensitivity analysis
These calculations provide an approximate guide to the sensitivity of results and may not be as accurate as a full valuation carried out on these
assumptions. Each assumption change is considered in isolation, which in practice is unlikely to occur, as changes in some of the assumptions
are correlated.
Pensionable Salary increases are capped at 2.5% pa, as currently assumed, therefore changing the underlying assumption for future salary increases
by +0.5% has no impact on the liabilities.
Expense recognised in the income statement
Current service cost
Administration expenses
Net interest expense / (credit)
Expense recognised in the income statement
Assumptions
Principal actuarial assumptions at the balance sheet date (expressed as weighted averages):
Group
Discount rate at 31 December
Future salary increases
Inflation - RPI
- CPI
Future pension increases
2017
£000
982
303
177
1,462
2017
%
2.4
2.5
3.2
2.2
2.5
2015
£000
2016
%
2.6
2.5
3.4
2.4
2.5
2014
£000
2016
£000
828
294
(272)
850
2015
%
3.8
2.5
3.1
2.1
2.5
2013
£000
2017
£000
2016
£000
Present value of defined benefit obligations
124,244
125,594
102,160
104,020
91,456
Fair value of scheme assets
Surplus/(deficit) in the scheme
126,355
119,004
109,277
103,352
94,693
2,111
(6,590)
7,117
(668)
3,237
The most recent formal actuarial valuation was carried out as at 30 June 2016. The results have been updated to 31 December 2017 for accounting
purposes by a qualified independent actuary. As part of this valuation exercise, the mortality assumptions for the scheme are now based on the SAPS
2 “all” tables and Core CMI_2016 projections with a long-term rate of improvement of 1.5% pa. These tables imply the following remaining life
expectancy at age 63.
Remaining years of life at 63
Men
Women
Current age at 43
Current age at 63
25.9
27.9
24.1
26.0
The Trustees are required to carry out an actuarial valuation every 3 years. The latest actuarial valuation of the Scheme was performed by the
Scheme Actuary for the Trustees as at 30 June 2016. This valuation revealed a funding shortfall of £36.1 million however allowing for changes in
market conditions and in particular the strong returns on the Scheme’s assets, the Scheme Actuary estimated that the Scheme’s shortfall had
decreased to around £25m as at 31 December 2017. In addition, the closure of the Scheme to future accrual has now been agreed with effect from
28 February 2018.
To eliminate the shortfall at 31 December 2017, the Trustee and the Company have agreed that three contributions of £5.5m will be paid into the
Scheme by the Company by 28 February 2018, 31 January 2019 and 31 January 2020. Alongside the latest valuation and the recovery plan the
Company has also agreed the principles of a longer-term plan to de-risk the pension scheme assets and liabilities position.
Bovis Homes Group PLC | 145
Notes to the financial statements continued
5.8 Related party transactions
Transactions between fellow subsidiaries, which are related parties, have been eliminated on consolidation, as have transactions between the Company
and its subsidiaries during this year.
Transactions between the Group, Company and key management personnel in the year ended 31 December 2017 were limited to those relating to
remuneration, which are disclosed in the director’s remuneration report (which can be found on pages 68 to 80 and in note 5.3). At a General Meeting
held on 2 May 2017, remuneration arrangements for Mr Greg Fitzgerald were approved comprising a Recruitment Award and the 2017 Bonus. Full
details are contained in the circular sent to shareholders dated 7 April 2017.
Mr Greg Fitzgerald, appointed Group Chief Executive on 18 April 2017, is non-executive Chairman of Ardent Hire Solutions (“Ardent”). The Group
hires forklift trucks from Ardent and has also undertaken a sale of forklift trucks to Ardent as part of its capital optimisation initiatives. The total net
value of transactions with Ardent were as follows:
Rental expenses paid to Ardent
Income received from Ardent for the sale of forklift trucks
2017
£000
1,413
2,287
2016
£000
926
833
The balance of rental expenses payable to Ardent at 31 December 2017 was £160,000 (2016: £103,000) and no income was receivable (2016: £nil).
There have been no other related party transactions in the financial year which have materially affected the financial performance or position of the
Group, and which have not been disclosed.
Transactions between the Group, Company and Joint Ventures are in note 5.5.
5.9 Reconciliation of Return on Capital Employed performance measure
Operating profit before exceptional items
Opening total equity
Deduct: investment in joint ventures
Deduct: net cash
Opening capital employed
Closing net equity including joint ventures
Deduct: investment in joint ventures
Deduct: net cash
Closing capital employed
Average capital employed (note1)
ROCE excluding joint ventures
Note 1 Average of opening and closing capital employed for the year.
5.10 Post balance sheet events
2017
£000
2016
£000
128,032
159,970
1,015,927
957,759
8,786
38,552
8,987
29,991
968,589
918,781
1,056,576
1,015,927
8,717
144,853
8,786
38,552
903,006
968,589
935,798
943,685
13.7%
17.0%
On 27 February 2018, the latest triennial pension valuation as at 30 June 2016 and the associated recovery plan was agreed with the scheme’s Trustees
(see note 5.7 for further detaills).
146 | Financial statements
Pre exceptional return on capital employed
Operating profit before exceptional items
Opening total equity
Deduct: investment in joint ventures
Deduct: net cash
Opening capital employed
Closing net equity including joint ventures
Deduct: investment in joint ventures
Deduct: net cash
Closing capital employed
Average capital employed (note1)
ROCE excluding joint ventures
Note 1 Average of opening and closing capital employed for the year.
2017
£000
2016
£000
128,032
159,970
1,015,927
957,759
8,786
38,552
8,987
29,991
968,589
918,781
1,056,576
1,015,927
8,717
144,853
8,786
38,552
903,006
968,589
935,798
943,685
13.7%
17.0%
Five year record - unaudited
Years ended 31 December
Revenue and profit
Revenue
Operating profit before financing costs
Net financing costs
Share of result of Joint Ventures
Profit before tax
Tax
Profit after tax
Balance sheet
Equity shareholders’ funds
Net (cash)/debt
Capital employed
Returns
Operating margin (note 1)
Return on shareholders’ funds (note 2)
Return on capital employed (note 3)
Homes (including units sold on third party owned land)
Number of unit completions
Average sales price (£’000)
Ordinary shares
Earnings per share (p) (note 4)
Dividends per share
Paid (p)
Interim paid and final proposed (p)
2017
£m
2016
£m
2015
£m
2014
£m
2013
£m
1,028.2
1,054.8
121.2
160.0
(7.2)
0.0
114.0
(22.7)
91.3
(5.6)
0.3
154.7
(33.9)
120.8
1,056.6
1,015.9
(144.9)
911.7
(38.6)
977.3
12%
9%
13%
15%
13%
17%
946.5
163.5
(5.2)
1.8
160.1
(32.1)
128.0
957.8
(30.0)
927.8
17%
15%
18%
809.4
137.6
(4.4)
0.3
133.5
(28.3)
105.2
879.1
(5.2)
873.9
17%
13%
16%
556.0
82.8
(4.3)
0.3
78.8
(18.7)
60.1
810.3
18.0
828.3
15%
8%
11%
3,645
272.4
3,977
254.9
3,934
231.6
3,635
216.6
2,813
195.1
68.0
90.1
95.4
78.6
44.9
45.0
47.5
41.3
45.0
36.7
40.0
21.5
35.0
10.0
13.5
Note 1: Operating margin has been calculated as operating profit over turnover.
Note 2: Return on shareholders’ funds has been calculated as profit after interest and tax over opening shareholders’ funds.
Note 3: Return on capital employed has been calculated as operating profit over the average of opening and closing shareholders’ funds plus net debt or less net cash,
excluding investment in Joint Ventures.
Note 4: Earnings per share is calculated on post exceptional basis (see note 2.3 on page 123).
Bovis Homes Group PLC | 147
Medium
term targets
Returning the Group to being
a leading UK housebuilder
by 2020
148 | Supplementary information
Supplementary information
Sherford, Devon
Bovis Homes Group PLC | 149
Notice of meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to any aspect of the proposals referred to in this document or as to the action you should take, you should seek your own
advice from a stockbroker, solicitor, accountant or other professional adviser.
If you have sold or otherwise transferred all of your shares, please pass this document together with the accompanying documents to the purchaser or
transferee, or to the person who arranged the sale or transfer so they can pass these documents to the person who now holds the shares.
Notice of meeting
NOTICE IS HEREBY GIVEN that the 2018 Annual General Meeting of Bovis Homes Group PLC (the “Company”) will be held at The Spa Hotel, Mount
Ephraim, Royal Tunbridge Wells, Kent TN4 8XJ on Wednesday, 23 May 2018 at 2.00 pm for the following purposes:
Ordinary resolutions
Reports and accounts
1
To receive the audited accounts of the Company for the year ended 31 December 2017 and the reports of the directors and auditors.
Remuneration report
2
To approve the directors’ remuneration report in the form set out in the Company’s annual report and accounts for the year ended 31 December
2017 in accordance with section 439 of the Companies Act 2006.
Dividend
3
To declare the final dividend recommended by the directors.
Directors
4
5
6
7
8
9
To re-appoint Ian Paul Tyler as a director of the Company.
To re-appoint Margaret Christine Browne as a director of the Company.
To re-appoint Ralph Graham Findlay as a director of the Company.
To re-appoint Nigel Keen as a director of the Company.
To re-appoint Michael John Stansfield as a director of the Company.
To re-appoint Gregory Paul Fitzgerald as a director of the Company.
10 To re-appoint Earl Sibley as a director of the Company.
Auditors
11 To re-appoint PricewaterhouseCoopers LLP as auditors of the Company.
12 To authorise the directors to determine the remuneration of the auditors.
Authority to allot shares
13
That the directors be generally and unconditionally authorised to allot shares in the Company and to grant rights to subscribe for or to convert any
security into shares in the Company pursuant to section 551 of the Companies Act 2006 (‘the 2006 Act’):
(a) up to an aggregate nominal amount of £22,423,521; and
(b) comprising equity securities (as defined in the 2006 Act) up to an aggregate nominal amount of £44,847,042 (including within such limit any
shares issued or rights granted under paragraph (a) above) in connection with an offer by way of a rights issue to holders of ordinary shares in
proportion (as nearly as may be practicable) to their existing holdings and so that the directors may impose any limits or restrictions and make
any arrangements which they consider necessary or appropriate to deal with fractional entitlements, record dates, legal, regulatory or practical
problems in, or under the laws of, any territory or any other matter, such authorities to apply (unless previously renewed, varied or revoked by
the Company in a general meeting) until the conclusion of the Annual General Meeting of the Company in 2019 or fifteen months from the
date of this resolution, whichever is the earlier, but in each case so that the Company may make offers and enter into agreements during the
relevant period which would, or might, require shares to be allotted, or rights to subscribe for or convert any security into shares to be granted,
after the authority ends and the directors may allot shares and grant rights under any such offer or agreement as if the authority had
not ended.
150 | Supplementary information
Notice of meeting continued
Special resolutions
Notice of general meetings
14 That a general meeting other than an Annual General Meeting may be called on not less than 14 clear days’ notice.
Authority to disapply pre-emption rights
15
That if resolution 13 is passed, and in place of all existing powers, the directors be generally empowered pursuant to section 570 and 573 of the
Companies Act 2006 (the ‘2006 Act’) to allot equity securities (as defined in the ‘2006 Act’) for cash under the authority given by that resolution
as if section 561 of the 2006 Act did not apply to any such allotment or sale, such power:
(a) to expire (unless previously renewed, varied or revoked by the Company in a general meeting) at the conclusion of the Annual General Meeting
of the Company in 2019 or fifteen months from the date of this resolution, whichever is the earlier, but, in each case during this period the
directors may make an offer or agreement which would or might require equity securities to be allotted after the power ends and the directors
may allot equity securities under any such offer or agreement as if the power had not ended;
(b) to be limited to the allotment of equity securities in connection with an offer of equity securities (but in the case of the authority granted under
resolution 13(b) by way of a rights issue only) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings
and so that the directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to
deal with fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter;
and
(c) to be limited, in the case of the authority granted under resolution 13(a), to the allotment of equity securities for cash otherwise than pursuant
to paragraph (b) up to an aggregate nominal amount of £3,366,895.
This power applies in relation to a sale of shares which is an allotment of equity securities by virtue of section 560(3) of the 2006 Act as if in the first
paragraph of this resolution the words ‘under the authority given by that resolution’ were omitted.
Authority to purchase own shares
16
That the Company be and is hereby granted general and unconditional authority, for the purposes of section 701 of the Companies Act 2006
(the ‘2006 Act’), to make market purchases (within the meaning of section 693(4) of the 2006 Act) of the ordinary shares of 50 pence each in its
capital PROVIDED THAT:
(i) this authority shall be limited so that the number of ordinary shares of 50 pence each which may be acquired pursuant to this authority
does not exceed an aggregate of 13,467,580 ordinary shares and shall expire at the conclusion of the next Annual General Meeting of the
Company in 2019 (except in relation to the purchase of ordinary shares the contract for which was concluded before such time and which is
executed wholly or partly after such time);
(ii) the maximum (exclusive of expenses) price which may be paid for each ordinary share shall be the higher of: (a) an amount equal to 105% of
the average of the middle market quotations for an ordinary share of the Company as derived from the London Stock Exchange Daily Official
List for the five business days immediately preceding the day on which the Company agrees to buy the ordinary shares; and (b) an amount
equal to the higher of the price of the last independent trade of an ordinary share and the highest current independent bill for an ordinary
share as derived from the London Stock Exchange Trading System (SETS) (Commission Delegated Regulation (EU) 2016/1052); and
(iii) the minimum price (exclusive of expenses) which may be paid for an ordinary share shall be 50 pence.
Bovis Homes Group PLC
The Manor House, North Ash Road
New Ash Green, Longfield
Kent DA3 8HQ
By Order of the Board
M T D Palmer
Group Company Secretary
23 March 2018
Bovis Homes Group PLC | 151
Notice of meeting continued
Notes:
(i)
(ii)
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 and section 360B(2) of the 2006 Act, the Company gives notice that
only holders of ordinary shares entered on the register of members no later than 8.00pm on 21 May 2018 (or, in the event of any adjournment,
8pm on the day which is two days before the adjourned meeting) will be entitled to attend and vote at the meeting and a member may vote
in respect of the number of ordinary shares registered in the member’s name at that time. Changes to entries on the register after the relevant
deadline shall be disregarded in determining the rights of any person to attend or vote at the meeting.
A registered member of the Company may appoint one or more proxies in respect of some or all of their ordinary shares to exercise that
member’s rights to attend, speak and vote at a meeting of the Company instead of the member. A registered member appointing multiple
proxies must ensure that each proxy is appointed to exercise rights attaching to different shares and must specify on the proxy form the number
of shares in relation to which that proxy is appointed. A proxy form which may be used to make such appointment and give proxy instructions
accompanies this Notice. If you do not have a proxy form and believe that you should have one, or if you require additional forms, please contact
the Company’s Registrar, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY. Members or their duly appointed
proxies are requested to bring proof of identity with them to the meeting in order to confirm their identity for security reasons. A shareholder
attending the meeting has the right to ask questions relating to the business being dealt with at the meeting in accordance with section 319A of
the 2006 Act. In certain circumstances prescribed by the same section, the Company need not answer a question.
(iii)
The proxy form must be executed by or on behalf of the member making the appointment. Any corporation which is a member can appoint
one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation
to the same shares. A corporation may execute the form(s) of proxy either under its common seal or under the hand of a duly authorised officer,
attorney or other authorised person. A member may appoint more than one proxy to attend and vote on the same occasion.
(iv)
A proxy need not be a member of the Company.
(v) Participants of the Bovis Homes Group Share Incentive Plan may instruct the trustee to vote on their behalf on a poll.
(vi)
(vii)
(viii)
(ix)
The proxy form and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or
authority must be received at the office of the Company’s Registrar, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol
BS99 6ZY or received via the Computershare website, (www.investorcentre.co.uk/eproxy) (full details of the procedures are given in the notes to
the proxy form enclosed with the report and accounts and on the website) not less than 48 hours (excluding non-working days) before the time
for holding the meeting. Completion of the proxy form, other such instrument or any CREST proxy instruction (as described in paragraph (vii)
below) will not preclude a member from attending the Annual General Meeting and voting in person instead of through his proxy or proxies.
Voting on all substantive resolutions will be by a poll. When announcing the results of the poll voting, the Company will disclose the total number
of votes in favour and against and the number of abstentions on the Company website (www.bovishomesgroup.co.uk) and through a Regulatory
Information Service. If a member returns both paper and electronic proxy instructions, those received last by the Registrar before the latest time
for receipt of proxies will take precedence. Members are advised to read the website terms and conditions of use carefully.
To appoint one or more proxies or to give an instruction to a proxy (whether previously appointed or otherwise) via the CREST system, CREST
messages must be received by the issuer’s agent (ID number 3RA50) not later than 48 hours (excluding non-working days) before the time
appointed for holding the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp generated
by the CREST system) from which the issuer’s agent is able to retrieve the message. After this time any change of instructions to a proxy
appointed through CREST should be communicated to the proxy by other means. CREST personal members or other CREST sponsored members,
and those CREST members who have appointed voting service provider(s) should contact their CREST sponsor or voting service provider(s) for
assistance with appointing proxies via CREST. For further information on CREST procedures, limitations and system timings please refer to the
CREST manual. The Company may treat as invalid a proxy appointment sent by CREST in the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does
not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in
relation to the input of CREST proxy instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a
CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time.
In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those
sections of the CREST manual concerning practical limitations of the CREST system and timings.
Any person to whom this Notice is sent who is a person nominated under section 146 of the 2006 Act to enjoy information rights (a “Nominated
Person”) may have a right, under an agreement between him and the member by whom he was nominated, to be appointed (or to have
someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not
wish to exercise it, he may, under any such agreement, have a right to give instructions to the member as to the exercise of voting rights.
The statement of the rights of members in relation to the appointment of proxies in paragraph (ii) above does not apply to Nominated Persons.
The rights described in these paragraphs can only be exercised by members of the Company.
(x)
As at 23 March 2018 (being the last practicable date prior to the publication of this Notice) the Company’s issued share capital consists of
134,675,804 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 23 March 2018 are 134,675,804.
152 | Supplementary information
Notice of meeting continued
(xi)
(xii)
Under section 527 of the 2006 Act, members meeting the relevant threshold requirements set out in that section may require the Company
to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s accounts (including the auditor’s report
and the conduct of the audit) that are to be laid before the Annual General Meeting; or (ii) any circumstance connected with an auditor of the
Company ceasing to hold office since the last Annual General Meeting that the members propose to raise at the Annual General Meeting.
The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528
of the 2006 Act. Where the Company is required to place a statement on a website under section 527 of the 2006 Act, it must forward the
statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be
dealt with at the Annual General Meeting includes any statement that the Company has been required under section 527 of the 2006 Act to
publish on a website.
Under sections 338 and 338A of the Companies Act 2006, members meeting the threshold requirements in those sections have the right to
require the Company: (a) to give, to members of the Company entitled to receive notice of the meeting, notice of a resolution which may
properly be moved and is intended to be moved at the meeting; and/or (b) to include in the business to be dealt with at the meeting any matter
(other than a proposed resolution) which may be properly included in the business unless (i) (in the case of a resolution only) it would, if passed,
be ineffective, (ii) it is defamatory of any person, or (iii) it is frivolous or vexatious. Such a request may be in hard copy form or in electronic form,
must identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or
persons making it, must be received by the Company not later than 9 April 2018, being the date six clear weeks before the meeting, and (in the
case of a matter to be included on the business only) must be accompanied by a statement setting out the grounds for the request.
(xiii) Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the
business being dealt with at the meeting but no such answer need be given if: (i) to do so would interfere unduly with the preparation for the
meeting or involve the disclosure of confidential information; (ii) the answer has already been given on a website in the form of an answer to a
question; or (iii) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
(xiv)
Except as provided above, members who wish to communicate with the Company in relation to the Annual General Meeting should do so
using the following means: (1) by writing to the Company Secretary at the registered office address; or (2) by writing to the Company’s Registrar,
Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY. No other methods of communication will be accepted. In
particular you may not use any electronic address provided either in this Notice of meeting or in any related documents (including the Chairman’s
Statement, the Annual Report 2017 and the proxy form) to communicate with the Company for any purposes other than those expressly stated.
(xv)
A copy of this Notice and other information required to be published in accordance with section 311A of the 2006 Act in advance of the Annual
General Meeting can be found at www.bovishomesgroup.co.uk.
(xvi)
The following documents will be available for inspection at the Company’s registered office, during normal business hours, on any weekday
(excluding public holidays) from the date of this Notice until the date of the Annual General Meeting and on that date they will be available for
inspection at the place of the meeting from 1.30pm until the conclusion of the meeting:
(a) copies of the directors’ service contracts;
(b) copies of the terms and conditions of appointment for each non-executive director; and
(c) the register of directors’ interests.
(xvii) The results of the voting at the Annual General Meeting will be announced through a Regulatory Information Service and will appear on the
Company’s website, www.bovishomesgroup.co.uk, as soon as reasonably practicable following the conclusion of the Annual General Meeting.
(xviii) Data protection statement: your personal data includes all data provided by you, or on your behalf, which relates to you as a shareholder,
including your name and contact details, the votes you cast and your Reference Number (attributed to you by the Company). The Company
determines the purposes for which and the manner in which your personal data is to be processed. The Company and any third party to which it
discloses the data (including the Company’s Registrar) may process your personal data for the purposes of compiling and updating the Company’s
records, fulfilling its legal obligations and processing the shareholder rights you exercise.
Explanatory notes to the notice of meeting
Item 1: Reports and accounts
The directors are required to present to shareholders at the Annual General Meeting the report of the directors, the strategic report and the accounts
of the Company for the year ended 31 December 2017. The report of the directors, the strategic report, the accounts and the report of the Company’s
auditors on the accounts and on those parts of the directors’ remuneration report that are capable of being audited are contained within the
Company’s annual report and accounts for the year ended 31 December 2017 (the “2017 Annual Report and Accounts”).
Item 2: Directors’ annual remuneration report
Under section 439 of the 2006 Act, the directors are required to present the directors’ remuneration report prepared in accordance with Schedule
8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended), for the approval of shareholders
by way of an advisory vote. The directors’ remuneration report, the relevant pages of which can be found on pages 78 to 97 of the 2017 Annual
Report and Accounts, gives details of the directors’ remuneration for the year ended 31 December 2017 and sets out the way in which the Company
will implement its policy on directors’ remuneration during 2018. The Company’s auditors, PricewaterhouseCoopers, have audited those parts of the
directors’ remuneration report capable of being audited and their report may be found on pages 108 to 114 of the 2017 Annual Report and Accounts.
Bovis Homes Group PLC | 153
Explanatory notes to the notice of meeting continued
The vote on the directors’ remuneration report is advisory in nature in that payments made or promised to directors will not have to be repaid, reduced
or withheld in the event that this resolution is not passed. However, if the vote on the directors’ remuneration report is not passed, the directors’
remuneration policy will be presented to shareholders for approval at the next Annual General Meeting.
A copy of the directors’ remuneration policy, which was approved at the 2017 Annual General Meeting, is available on the website at
www.bovishomesgroup.co.uk or in hard copy on request from the Group Company Secretary.
Item 3: Final dividend
Subject to the declaration of the final dividend at the meeting, the dividend will be paid on 25 May 2018 to shareholders on the register at the close of
business on 3 April 2018.
Items 4 to 10: Re-appointment of directors
The UK Corporate Governance Code (“the Code”) requires FTSE 350 companies to put all directors forward for re-appointment by shareholders on an
annual basis. The purpose of this requirement is to increase accountability to shareholders. Accordingly, all the directors of the Company will retire at
the Annual General Meeting and offer themselves for re-appointment, with the exception of Alastair Lyons who will have completed nine years service
with the Company. The Company’s Articles of Association require that any director appointed by the Board shall hold office only until the first annual
general meeting for which notice is first given after their appointment. Accordingly, Mike Stansfield will offer himself for re-appointment on this basis.
The Code contains provisions dealing with the re-appointment of non-executive directors. In relation to the re-appointment of Chris Browne, Ralph
Findlay, Nigel Keen and Mike Stansfield as non-executive directors, the Chairman has confirmed following the formal performance evaluation
conducted during late 2017 that they continue to be effective in and demonstrate commitment to their roles, including commitment of time for Board
and committee meetings. Chris Browne provides a strong commercial and operational background in a consumer facing industry. Ralph Findlay adds
strong commercial, financial and general management expertise, again from a consumer facing industry. Nigel Keen brings an in-depth construction
and property background and experience of managing property strategy and portfolios, once again from a consumer facing industry. Mike Stansfield
was newly appointed in November 2017 but brings considerable housing developer experience. Ian Tyler, non-executive Chairman, has considerable
construction industry knowledge and international business experience.
The Board strongly supports and recommends the re-appointment of the directors to shareholders.
Biographical details of all the directors can be found on pages 58 to 59 of the 2017 Annual Report and Accounts.
Items 11 and 12: appointment of auditors and auditors’ remuneration
The auditors of a company must be appointed at each general meeting at which accounts are presented. Resolution 11 proposes the re-appointment
of the Company’s existing auditors, PricewaterhouseCoopers LLP, as the Company’s auditors, for a further year. PricewaterhouseCoopers LLP were first
appointed at the 2015 AGM. Resolution 12 gives authority to the directors to determine the auditors’ remuneration.
Item 13: Authority to allot shares
The authority given to your directors at last year’s Annual General Meeting under section 551 of the 2006 Act to allot shares expires on the date of
the forthcoming Annual General Meeting. Accordingly, this resolution seeks to grant a new authority under section 551 to authorise the directors to
allot shares in the Company or grant rights to subscribe for, or convert any security into, shares in the Company up to an aggregate nominal amount
of £22,423,521 and also gives the Board authority to allot, in addition to these shares, further of the Company’s shares up to an aggregate nominal
amount of £44,847,042 in connection with a pre-emptive offer to existing members by way of a rights issue (with exclusions to deal with fractional
entitlements to shares and overseas shareholders to whom the rights issue cannot be made due to legal and practical problems). This is in accordance
with the latest institutional guidelines published by the Investment Association. This authority will expire at the conclusion of the next Annual General
Meeting (or, if earlier, 15 months from the date of the resolution). The directors intend to seek renewal of this authority at subsequent Annual
General Meetings.
The amount of £22,423,521 represents less than 33.3% of the Company’s total ordinary share capital in issue as at 23 March 2018 (being the latest
practicable date prior to publication of this Notice). The amount of £44,847,042 represents less than 66.6% of the Company’s total ordinary share
capital in issue as at 23 March 2018 (being the latest practicable date prior to publication of this Notice). The Company did not hold any shares in
treasury as at 23 March 2018.
The Board has no present intention to exercise this authority other than in connection with employee share schemes. It wishes to obtain the necessary
authority from shareholders so that allotments can be made (should it be desirable and should suitable market conditions arise) at short notice and
without the need to convene a general meeting of the Company which would be both costly and time consuming.
If the Board takes advantage of the additional authority to issue shares or grant rights to subscribe for, or convert any security into, shares in the
Company representing more than 33.3% of the Company’s total ordinary share capital in issue or for a rights issue where the monetary proceeds
exceed 33.3% of the Company’s pre-issue market capitalisation, all members of the Board wishing to remain in office will stand for re-election at the
next Annual General Meeting following the decision to make the relevant share issue.
154 | Supplementary information
Explanatory notes to the notice of meeting continued
Item 14: Notice of general meetings
This resolution is required as a result of the implementation in 2009 of the Shareholder Rights Directive. The regulation implementing this Directive
increased the notice period for general meetings under the 2006 Act to 21 days. The Company will be able to continue to call general meetings
(other than an Annual General Meeting) on 14 clear days’ notice as long as shareholders have approved the calling of meetings on 14 days’ notice.
Resolution 14 seeks such approval. The approval will be effective until the Company’s next Annual General Meeting, where it is intended that a
similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Directive before it can call a
general meeting on 14 days’ notice. It is confirmed that the ability to call a general meeting on 14 clear days’ notice would only be utilised in limited
circumstances and where the shorter notice period will be to the advantage of shareholders as a whole.
Item 15: Disapplication of pre-emption rights
Resolution 15 seeks authority for the directors to issue equity securities (as defined in the 2006 Act) in the Company for cash as if the pre-emption
provisions of section 561 of the 2006 Act did not apply. Other than in connection with a rights issue or any other pre-emptive offers concerning
equity securities, the authority contained in this resolution will be limited to the issue of equity securities for cash up to an aggregate nominal value of
£3,366,895 which represents approximately 5% of the Company’s total ordinary share capital in issue as at 23 March 2018 (being the latest practicable
date prior to publication of this Notice). In accordance with the Pre-emption Group’s Statement of Principles, the directors confirm their intention that
no more than 7.5% of the issued share capital (excluding treasury shares) will be issued for cash on a non pre-emptive basis during any rolling three-
year period.
This resolution seeks a disapplication of the pre-emption rights on a rights issue so as to allow the directors to make exclusions or such other
arrangements as may be appropriate to resolve legal or practical problems which, for example, might arise with overseas members.
There are presently no plans to allot ordinary shares wholly for cash other than in connection with employee share schemes. Shares allotted under an
employee share scheme are not subject to statutory pre-emption rights.
The authority sought by resolution 15 will last until the conclusion of the next Annual General Meeting (or, if earlier, 15 months from the date of
the resolution). The directors intend to seek renewal of this power at subsequent Annual General Meetings.
Item 16: Authority to purchase own shares
This resolution renews the authority granted at last year’s Annual General Meeting to enable the Company to make market purchases of up to
13,467,580 of its own shares, representing approximately 10% of the Company’s total ordinary share capital in issue as at 23 March 2018 (being the
latest practicable date prior to publication of this Notice). Before exercising such authority, the directors would ensure that the Company was complying
with the current relevant UK Listing Authority rules and Investment Association guidelines. No purchases would be made unless the directors believe
that the effect would be to increase the earnings per share of the remaining shareholders and the directors consider the purchases to promote the
success of the Company for the benefit of its shareholders as a whole. Any shares so purchased would be cancelled. The directors have no present
intention of exercising the authority to purchase the Company’s ordinary shares but would like to have the flexibility of considering such purchases in
the future.
Any purchases of ordinary shares would be by means of market purchases through the London Stock Exchange. The maximum price (exclusive of
expenses) which may be paid for each ordinary share shall be the higher of: (a) an amount equal to 105% of the average of the middle market
quotations for an ordinary share as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the
day on which the Company agrees to buy the ordinary shares; and (b) an amount equal to the higher of the price of the last independent trade of an
ordinary share and the highest current independent bid for an ordinary share as derived from the London Stock Exchange Trading System (SETS).
The minimum price (exclusive of expenses) would be 50 pence, being the nominal value of each ordinary share. The authority will only be valid until
the conclusion of the next Annual General Meeting in 2019.
As at 23 March 2018 there were options over 604,529 ordinary shares in the capital of the Company which represent 0.45% of the Company’s issued
ordinary share capital at that date. If the authority to purchase the Company’s ordinary shares was exercised in full, these options would represent
0.50% of the Company’s issued ordinary share capital.
The directors consider that all the resolutions to be put to the meeting promote the success of the Company for the benefit of its
shareholders as a whole. Your Board will be voting in favour of them and unanimously recommends that you do so as well.
Bovis Homes Group PLC | 155
Shareholder information
Registered office
The Manor House, North Ash Road, New Ash Green, Longfield, Kent DA3 8HQ. Registered number 306718 registered in England.
Financial calendar
Annual report posted
Annual General Meeting
Payment of 2017 final dividend
Announcement of 2018 interim results
Announcement of 2018 final results
Analysis of shareholdings - at 31 December 2017
1 - 5,000
5,001 - 50,000
50,001 - 250,000
250,001 - 500,000
500,001 - 1,000,000
1,000,001 - and over
Total
Share price (middle market) - year to 31 December 2017
9 April 2018
23 May 2018
25 May 2018
6 September 2018
February 2019
Number of
shareholders
1,773
267
102
47
20
25
%
Number of
ordinary shares
79.36
11.95
4.57
2.10
0.90
1.12
1,571,431
4,462,148
12,724,465
16,907,434
13,645,089
85,350,183
2,234
100.0
134,660,750
%
1.17
3.31
9.45
12.56
10.13
63.38
100.0
At end of year: 1,172p
Lowest: 760p Highest: 1,213p
Advisers
Auditors
PricewaterhouseCoopers LLP
Financial advisers
Moelis & Company
Solicitors
Linklaters LLP
Principal bankers
Abbey National
Treasury Services PLC
Barclays Bank PLC
Handelsbanken Capital
Markets, Svenska
Handelsbanken AB
HSBC Bank plc
Lloyds Bank PLC
Royal Bank of Scotland plc
Joint stockbrokers
Deutsche Bank AG London
1 Great Winchester Street
London EC2N 2DB
Numis Securities Limited
The London Stock
Exchange Building
10 Paternoster Square
London EC4M 7LT
Insurance brokers
Arthur J Gallagher
Registrars
Computershare Investor
Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Registrar
Shareholder enquiries regarding change of address, dividend payment or
lost certificates should be directed to: Computershare Investor Services
PLC, The Pavilions, Bridgewater Road, Bristol BS99 6ZZ. Bovis Homes
Shareholder Helpline: 0370 889 3236.
Investor Centre:
the easy way to manage your shareholdings online:
Many shareholders want to manage their shareholding online and do so
using Investor Centre, Computershare’s secure website. With Investor
Centre you can view shares balances, history and update your details.
Visit www.investorcentre.co.uk for more information.
Internet and telephone share dealing is available via
Investor Centre:
Internet dealing - The fee for this service is 1% of the value of each
sale or purchase of shares (subject to a minimum of £30). Stamp duty of
0.5% is payable on purchases. Before you trade you will need to register
for this service. This can be done by going online at
www.computershare.trade.
Telephone dealing - The fee for this service will be 1% of the value
of the transaction (plus £35). To use this service please call 0370 703
0084 with your SRN to hand. Please note that due to the regulations in
the UK, Computershare are required to check that you have read and
accepted the terms and conditions before being able to trade, which
could delay your first telephone trade. If you wish to trade quickly, we
suggest visiting their website and registering online first at
www.computershare.trade.
Note: The provision of these services is not a recommendation to buy,
sell or hold shares in Bovis Homes Group PLC.
Dividend Reinvestment Plan (DRIP)
The DRIP gives shareholders the opportunity to reinvest their dividends
to buy ordinary shares in the Company through a special dealing
arrangement. For further information please contact the Bovis Homes
Shareholder Helpline: 0370 889 3236.
Electronic communications
Instead of receiving printed documents through the post many
shareholders now receive their annual report and other shareholder
documents electronically, as soon as they are published. Shareholders
that would like to sign up for electronic communications should go to
www.investorcentre.co.uk/ecomms where they can register.
156 | Supplementary information
Annual report and accounts 2017
Supplementary information
Principal offices
Bovis Homes Group PLC
The Manor House
North Ash Road
New Ash Green
Longfield
Kent DA3 8HQ
Tel: (01474) 876200
2
1
3
5
6
7
4
West division
1
Mercia region
2
West Midlands region
3
Western region
4
South West region
Dunston Hall
Dunston
Stafford
ST18 9AB
Bromwich Court
Highway Point
Gorsey Lane
Coleshill
Birmingham B46 1JU
Cleeve Hall
Cheltenham Road
Bishops Cleeve
Cheltenham
Gloucestershire GL52 8GD
Heron Road
Sowton Industrial Estate
Exeter
EX2 7LL
Tel: (01785) 788300
Tel: (01675) 437000
Tel: (01242) 662400
Tel: (01392) 344700
East division
5
Northern Home
Counties region
6
Southern Counties
region
St Annes House
Caldecotte Lake
Business Park
Milton Keynes
Buckinghamshire
MK7 8JU
Central 40
Lime Tree Way
Chineham Park
Basingstoke
Hampshire
RG24 8GU
7
South East region
The Manor House
North Ash Road
New Ash Green
Longfield
Kent
DA3 8HQ
Tel: (01908) 088500
Tel: (0845) 812 7777
Tel: (01474) 876200
Bovis Homes Group PLC | 157
Heyford Park, Upper Heyford
Annual report and accounts 2017
Bovis Homes Group PLC
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Bovis Homes Group PLC, The Manor House,
North Ash Road, New Ash Green, Longfield,
Kent DA3 8HQ.
www.bovishomesgroup.co.uk
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The pulp used in this product is bleached using an Elemental
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When you have finished with
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